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For those who are at least 50 years old and planning for retirement, the information available about IRAs can be daunting. This article gives you the key information you need to know in a nutshell.
The current limits on IRA contributions
The amount you can contribute to your IRA account each year is determined by the IRS. The age limit on when you can make contributions is limited to 70 ½ with a Traditional IRA. No such limit applies to the Roth IRA.
You qualify to make additional catch-up contributions if you will have reached age 50 by the end of the year.
Due date for contributions
The due date for IRA contributions is the same for filing your tax return, not including extensions. Thus, for most people, this means that contributions must be made by April 15.
The table below shows the contribution limits imposed by the IRS.
Minimum required distributions (MRD)
The Internal Revenue Code established these minimums to ensure that you actually use your Employer Sponsored Retirement Plan account balance for its intended purpose - retirement.
Unless an earlier date is specified by your plan, you must take your first withdrawal (MRD) according to the following table:
The IRS issued final regulations relating to MRDs from retirement accounts (including 401(k) plan accounts, IRAs, and 403(b) plans) on April 17, 2002, with an effective date of January 1, 2003. The new rules resulted in new life expectancy tables with longer expectancy factors, which generally result in smaller required distribution amounts.
In General, your MRD is determined by dividing the adjusted market value of your tax-deferred retirement account as of December 31 of the prior year, by an applicable life expectancy factor taken from the Uniform Lifetime Table.
Mary is a retired Traditional IRA account owner who turned 70-1/2 on March 31. On December 31 of last year, the ending balance in her Traditional IRA account was $100,000. To calculate her MRD for this year, divide $100,000 by her life expectancy factor of 26.5 years. Her distribution amount is $3773.59.
Life expectancy factor = MRD
$100,000 = $3773.59
MRDs are subject to federal income tax and may also be subject to state and local taxes. MRDs distributions are not eligible for rollover.
Distributions received before age 59 1/2 from a Traditional IRA are subject to an additional early distribution penalty tax of 10%, unless an exception applies. Distributions received before age 59 1/2 from a Roth IRA may be made tax-free. This only applies to withdrawal of contributions, not the earnings on the contributions.
Consult a tax professional before accessing money in your IRA. Read IRS Publication 590 Individual Retirement Arrangements (IRAs), for more information.
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