Required Minimum Distributions

Your financial advisor can help you work with your tax advisor to understand the complex rules that govern IRA distributions and avoid errors that can trigger major tax consequences. Different options are available depending on how old you are. Your financial advisor can assist you in developing a strategy that fits your situation whether you are younger than 59 1/2 and seeking an early withdrawal, between 59 1/2 and 70 1/2 and able to take regular withdrawals, or over 70 1/2 and subject to required minimum distributions (RMDs).

It’s your age that matters

Your age plays an important role in determining an appropriate distribution strategy. Withdrawing money too early may trigger tax penalties. Strategies that work as you reach your 70s may not be appropriate or even possible when you’re 60 or 50. Here are some of the ways your options differ, depending on how old you are:

Distribution Rules for Those Younger than 59 1/2

  
Traditional
Withdrawal penalties
Tax implications

  • Taxed as ordinary income

Required minimum distributions

  • Not until April 1st of the year after you turn 70 1/2

Roth
Withdrawal penalties

  • No penalties on contributions. 10% penalty on investment income withdrawn unless distribution meets early withdrawal criteria.

Tax implications

  • Contributions can be withdrawn tax-free. Ordinary income taxes apply to investment income unless the Roth IRA has been open for at least five years and withdrawal is due to death, disability or qualified first home purchase

Required minimum distributions

  • No1

 

Distribution Rules for Those  59 1/2
to 70 1/2

 
Traditional
Withdrawal penalties

  • No penalties
Tax implications

  • Taxed as ordinary income

Required minimum distributions

  • Not until you turn 70 1/2

Roth
Withdrawal penalties

  • No penalties on contributions or investment income
Tax implications

  • Your contributions can be withdrawn tax-free. Investment income can be withdrawn tax-free, as long as the account has been open for at least five years from when you first make your contribution
Required minimum distributions

  • No1

Distribution Rules for Those  Over
70 1/2

 
Traditional
Withdrawal penalties

  • 50% penalty applies if you fail to take RMDs or if your withdrawal is less than your RMD. (You pay 50% of the difference between the RMD and your withdrawal.)
Tax implications

  • Taxed as ordinary income

Required minimum distributions

  • Yes, starting no later than the April 1st of the year following the date you turn 701⁄2 and annually by December 31st thereafter

Roth
Withdrawal penalties

  • No penalties on contributions or investment income
Tax implications

  • Your contributions can be withdrawn tax-free. Investment income can be withdrawn tax-free, as long as the account has been open for at least five years from when you first make your contribution
Required minimum distributions

  • No1

1 A spouse beneficiary of a Roth IRA generally may elect to take distributions over his or her own life expectancy. A Nonspouse beneficiary of a Roth IRA must either deplete the account within five years of the owner's death or withdraw the money over the course of his or her own life expectancy.

Calculating RMDs

  

To determine your current year RMD, you divide the balance of your IRA account as of the end of the latest calendar year by your Uniform Life Expectancy Factor (provided by the IRS). If your spouse is 10 years younger than you, and is your sole beneficiary, then your RMD will be determined based on your joint life expectancy. Your financial advisor can work with your tax advisor when calculating your RMD.

The RMD Calculation Formula2

  

Prior year-end IRA balance ÷ Life expectancy factor = Current year required minimum distribution amount

2 If your spouse is more than ten years younger than you, and is your sole beneficiary, then your RMD will be determined based on your joint life expectancy. Consult your financial or tax advisor for more information.
QUICK LINKS

IRA Distribution Planning Brochure

Required Minimum Distributions Calculator

IRA Application


Van Kampen does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. It was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. Federal and state tax laws are complex and constantly changing. You should always consult your own legal or tax advisor for information concerning your individual situation.

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