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If you’re approaching the age of 59, you will soon be eligible to begin taking distributions from your self-directed IRA without being subject to an early distribution penalty. And if you’re about to turn 70½, it won’t be long until you must take Required Minimum Distributions from your Traditional IRA. As with many things that involve the IRS, there are nuances and special conditions that affect what you should do and how much you should withdraw.
Entrust wants to help you avoid costly penalties for taking distributions early or forgetting to take distributions when you’re required to do so.
Although you can take distributions from your IRA at any time, generally, you need to be 59½ years old before taking distributions in order to avoid paying an early withdrawal penalty of 10 percent. There are various exceptions that will allow you to take funds out of your IRA without paying the penalty:
2) Roth Advantage No. 1
If you own a Roth IRA, you will not be taxed or penalized for taking distributions because the contributions to the account were taxed at the outset. Earnings were allowed to grow tax-deferred, and may be distributed tax-free if you satisfy certain distribution criteria (qualified distributions).
3) Roth Advantage No. 2
Additionally, Roth IRA owners aren’t required to take required minimum distributions.
4) Required Minimum Distributions
Otherwise, as in a Traditional IRA, once you reach age 70½, the IRS requires you to begin taking annual distributions, also known as required minimum distributions (RMDs). If you do not withdraw the specified amounts, you face a penalty of 50 percent of the required amount you fail to take out.
5) Calculating RMDs
There are two different ways to calculate RMDs. The way that applies to you largely depends on whether your beneficiary is a spouse and if your spouse is more than 10 years younger that you. Keep in mind you may always distribute an amount larger than what is required. You may also satisfy the distribution from another IRA you own at another institution. Knowing your RMD amount is a helpful tool to accurately plan your retirement income.
6) Uniform Lifetime Table
The Uniform Lifetime table is generally the table used to calculate an individual’s RMD, even if the spouse is the beneficiary, as long as the spouse is not greater than 10 years younger. View the IRS’ Uniform Lifetime Table.
7) Joint Life and Last Survivor Table
The Joint Life and Last Survivor table is used when the beneficiary of the self-directed IRA is the spouse, and is more than 10 years younger than the IRA owner. This calculation table was designed to stretch retirement funds over a longer period of time to support the intended beneficiary, as well as the owner. View the IRS’ Joint Life and Last Survivor Table.
The process of taking distributions from an IRA can be a headache. That is why we developed The Entrust Group myDirection Visa® Prepaid Card for distributions. Receiving money from a retirement account includes requesting funds, waiting for a check to be issued, and then depositing the check. IRA owners encounter check request fees, wait times to receive the funds, and then a necessary trip to the bank to wait in another line and make the deposit before the funds can be used. With The Entrust Group myDirection Visa® Card, your funds are automatically added to the card each month, at no additional cost, and you can use your card just like any prepaid debit card. Amounts processed under the card will be automatically tracked and reported as a distribution from your IRA, cutting out unnecessary steps.
The card has no set-up or monthly fees, offers online access and support and gives you the flexibility to schedule distribution transfers. You’ll never miss a distribution deadline and be penalized. Simply arrange for your distributions to be transferred onto the card, and then use it like any prepaid debit card, anywhere Visa® Debit cards are accepted.
If you are currently required to take distributions and would like to make this process easier by using The Entrust Group myDirection Visa® Distribution Card, get started here.