Ask the Expert
Retirement Accounts: When to Withdraw? And How Much?
Doug Terwilliger, NEA Members Benefits
The IRS requires individuals age 701⁄2 and older to take out a “required minimum distribution” (RMD) from their retirement account(s) every year. The required beginning date is April 1st following the year you turn 701⁄2. The minimum changes each year depending on your age. Failure to take out your required minimum distribution may result in a 50-percent tax penalty (on the difference between the required minimum distribution and the amount you actually withdrew).
What types of retirement accounts are affected by an RMD?
Any employer-sponsored retirement plan (e.g., 401a, 401k, 403b, 403b7, 457, TSP), a traditional individual retirement account (IRA), or a deductible IRA must have distributions taken after age 701⁄2. The required minimum distribution regulations do not apply to Roth IRAs because taxes have already been paid on the contributions into this account.
Have the mortality tables for calculating lifetime and after-death required minimum distributions changed?
Yes. The mortality tables were modified in 2002 to reflect current life expectancy.
The regulations adopted three new tables of life expectancies for determining required minimum distributions:
- Uniform Lifetime Table: applies to retirement account holders.
- Single Life Table: applies to beneficiaries of retirement funds.
- Joint Life Table: applies to account holders whose spouses are more than 10 years younger.
How much of a difference do the new regulations make?
To calculate the difference the new rules make, consider a single person age 70 with a $100,000 balance in his IRA. The required minimum distribution under the 1986 rule is $6,250, whereas now it would be only $3,817 (Uniform Lifetime Table). This $2,433 difference left to compound at 7-percent interest for 10 years would nearly double. The cumulative difference over 10 years would be over $35,000, which is a major benefit to a person who believes they will need more money in their 80s than they will in their 70s.
What if I receive more than the minimum in one year—can I reduce the amount the following year(s)?
No. If, in any year, you receive more than the required minimum distribution for that year, you will not receive credit for the additional amount when determining the minimum required distributions for future years.
Where can I find additional information about required minimum distributions?
Review a copy of IRS Publication 590 at your local IRS office or at http://www.irs.gov/.New 2007 Medicare Amounts
The Centers for Medicare and Medicaid have adjusted the 2007 beneficiary premiums, deductibles, and other cost sharing amounts for Medicare Parts A and B.
- The Part A hospital inpatient deductible is $992 (from $952 in 2006).
- The daily coinsurance for days 61–90 is $248.00 (from $238 in 2006) and for days 91–150 is $496.00 (from $476 in 2006).
- The skilled nursing facility coinsurance amount is $124.00 (from $119.00 in 2006)
- The Part B standard monthly premium is $93.50 (from $88.50 in 2006).
- For beneficiaries with incomes exceeding $80,000, the Part B monthly premium will range from $106-$162.10.
- The annual Part B deductible is $131.00 (from $124.00 in 2006).
In addition, the out-of-pocket maximums for Medicare Supplement insurance plans K and L have increased to $4,140 and $2,070, respectively.