What is an IRA Distribution?
An IRA distribution describes a withdrawal of cash and/or assets from an IRA. Distributions can be taken at any time. The type of IRA will determine whether there are tax and penalties associated with distributions. Below are the two methods of distribution:
Cash Distributions - When an IRA holder requests a cash amount to be distributed from the account and sent via check, ACH or wire directly into their hands. This method of distribution can be used for the full distribution or
'In-kind' Distributions - Used to distribute non-cash assets from an IRA without selling these assets. This method of distribution changes the ownership of the asset from the IRA’s name to the name of the IRA holder. This type of withdrawal is used for illiquid assets like real estate and private placements. The Fair Market Value (FMV) of the asset is used to report to the IRS the dollar value of the distribution.
For both Cash and In-kind distributions, the IRS Form used to report the distribution to the IRS and the IRA holder is the IRS Form 1099-R.
Once an IRA holder reaches age 70½, it is required to withdraw a certain amount of money from the retirement account each year, depending on the type of IRA you have. That amount is called a Required Minimum Distribution, or RMD. (Update from the SECURE Act of 2019: the age at which individuals need to start taking required minimum distributions has been extended to the year the IRA holder turns 72. However, individuals who turned age 70 ½ in 2019, will still need to take their first RMD by April 1, 2020.)