IRS simplifies rules for IRA required minimum distributions

Tax law requires individual retirement account holders to begin taking out at least minimum amounts from their accounts once they reach age 70. Technically, that means the IRA money must start coming out in specific increments by April 1 following the year you reach that age.

But thanks to the new, simpler minimum distribution rules from the Internal Revenue Service, you now can take out less. This is welcome news to retirees who have enough income from other sources and who want to withdraw as little as possible from their IRAs, letting the accounts grow in value for longer.

The IRA distribution rules are officially effective for money taken out on or after Jan. 1, 2003. However, the IRS is allowing taxpayers to use the new minimum distributions method immediately or to continue to use the earlier guidelines (devised in 1987) if they are more beneficial in determining the required distribution amounts for 2002.

The required annual minimum distributions can be calculated by dividing an account's year-end value by the distribution period shown in the IRS table below. For example, Joe is 80 with an IRA worth $100,000 at the end of 2001. The table indicates a distribution period of 18.7 years for an 80-year-old. Therefore, Joe must take out at least $5,348 this year ($100,000 divided by 18.7).

This table also can be used to determine the minimum distributions that must be taken from qualified company retirement plans, such as 401(k)s and profit-sharing plans. Roth IRAs are not affected by the new rules, because these accounts do not have required minimum distribution amounts.

Required minimum IRA distributions
To calculate the minimum distribution, take the age of the retiree, and find the corresponding distribution period. Then divide the value of the IRA by the distribution period to find the minimum annual distribution. For example, Joe is 80 with an IRA worth $100,000 at the end of 2001. The table indicates a distribution period of 18.7 years for an 80-year-old. Therefore, Joe must take out at least $5,348 this year ($100,000 divided by 18.7).
Age of retiree
Distribution period (in years)
 
Age of retiree
Distribution period (in years)
 
Age of retiree
Distribution period (in years)
70
27.4
 
86
14.1
 
102
5.5
71
26.5
 
87
13.4
 
103
5.2
72
25.6
 
88
12.7
 
104
4.9
73
24.7
 
89
12.0
 
105
4.5
74
23.8
 
90
11.4
 
106
4.2
75
22.9
 
91
10.8
 
107
3.9
76
22.0
 
92
10.2
 
108
3.7
77
21.2
 
93
9.6
 
109
3.4
78
20.3
 
94
9.1
 
110
3.1
79
19.5
 
95
8.6
 
111
2.9
80
18.7
 
96
8.1
 
112
2.6
81
17.9
 
97
7.6
 
113
2.4
82
17.1
 
98
7.1
 
114
2.1
83
16.3
 
99
6.7
 
115 or older
1.9
84
15.5
 
100
6.3
     
85
14.8
 
101
5.9
     

 

-- Updated: May 29, 2002

 

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