Traditional IRA Distributions
Account owners are eligible to take distributions at any time from an IRA funded by individual contributions, although such a distribution may be subject to ordinary income taxes and a penalty.
This right includes rolling the proceeds from the distribution to another IRA within 60 days of the account owner’s receipt of the distribution.
This “rollover” may be done once every twelve months. Distributions not rolled over are taxed at a taxpayer’s ordinary income tax rate.
Required Minimum Distributions
Required Minimum Distributions must begin when the account owner attains age 70½. The account owner’s Required Beginning Date (RBD) is April 1st of the year following the year s/he attains age 70½.
Premature Distributions
Premature distributions (i.e., distributions taken before the account owner has attained age 59½)
are generally subject to a 10% penalty unless an exemption exists.
The exemptions to the penalty are:
- disability as defined under §72(m)(7)
- per the requirements of the §72(t) provision, substantially equal payments based on the
life expectancy of the owner for at least five years or until age 59½, whichever is longer1
- medical care expenses in excess of 7.5% of AGI
- higher education expenses of the IRA owner or spouse, child or grandchild
- first-time homebuyer expenses
- involuntary distributions due to an IRS levy
- health insurance premiums for unemployed individuals under certain circumstances
Death Distributions
Legend should be notified by the account owner’s beneficiary(ies) by December 31st of the year of the owner’s
death for optimum payout options or by September 30th of the year following the owner’s death, at the latest, if there are multiple beneficiaries.
If a trust is the owner’s beneficiary, Legend must receive adequate documentation by October 31st of the year following the owner’s death.
Federal Withholding of Income Taxes
IRAs are governed under the voluntary withholding rules. This means that you have a choice whether Legend will withhold
Federal income tax from your distributions or not. However, Legend must withhold 10% if you do not complete a withholding waiver.
Talk to your Legend Group financial advisor for assistance in devising a distribution strategy designed to reflect your situation and objectives.
1To take advantage of the §72(t) provision, one must adhere to the established payment schedules (monthly, quarterly, annually) chosen for at least 5 years or until age 59½,
whichever comes later. The exact amount established must be withdrawn each year; a variation will result in the 10% penalty being applied retroactively.
Legend Equities Corporation and its affiliates do not provide tax or legal information or advice.