Questions From Listeners: Withdrawing From IRA When Retired

BOSTON (WBZ-AM) -- Q: How much will I have to withdraw from my IRA when I retire?

I will receive a pension and a Social Security benefit. I also have rental property, so I will not need to tap in to my IRAs.

I think you are referring to minimum required distributions (MRDs) which must begin at age 70½ for IRAs except the Roth IRA. You can start taking money out of an IRA without a penalty once you reach age 59½.

You are required by law to start minimum distributions by April 1 of the year after you turn 70½ but you may need to take your second distribution that year also. Receiving both payments in one year could bump you into a higher tax bracket. Consider taking the first payment by December 31 of the previous year instead.

The required distributions are based on your life expectancy using an IRS table, the Uniform Lifetime Table. You may be sure you're going to make it to 100, but the IRS has other ideas. Don't mess with the minimum required distribution because, if you are late in taking that first distribution, there is a 50% penalty on the amount of the required minimum distribution.

The required amount you need to withdraw is about 4% a year. For example, if you have $200,000 in your IRA as of December 31, 2017 and if you are over 70½ you will need to withdraw about $8,000 for your 2018 distribution.

If you have multiple IRAs and retirement accounts, you must use the combined value to determine the minimum distribution. But you need only use one account to withdraw funds from. Consolidating your accounts will make it much easier to take the correct withdrawals.

This can be complicated stuff! The custodian of your IRA or retirement plans should be there to help and to remind you that you are getting close to age 70 and need to make some decisions. That’s the reason they ask you for your birth date on the application.

One more thing:  The IRS wants to begin to collect taxes from you that you were able to defer all those years. If you are married and your spouse is more than ten years younger than you are and he is the beneficiary on your IRA you will use a different table to calculate your distribution, the Joint Life Expectancy Table. Your required distributions using this table will be smaller for the IRS takes into consideration that the younger spouse will outlive you.

Now if you married a man ten years your junior that was smart planning for women usually outlive their spouses. So now you will have someone to take care of you in your old age!