Contributions Returned
Before the Due Date
If you made IRA contributions in 2002, you can withdraw them tax free
by the due date of your return. If you have an extension of time to file your
return, you can withdraw them tax free by the extended due date. You can do this if, for
each contribution you withdraw, both of the following conditions apply.
- You did not take a deduction for the contribution.
- You also withdraw any interest or other income earned on the contribution. You can take
into account any loss on the contribution while it was in the IRA when calculating the
amount that must be withdrawn. If there was a loss, the net income earned on the
contribution may be a negative amount.
Note. If the trustee of your IRA is unable to calculate the
amount you must withdraw, get IRS Notice 2000-39 or section 1.408-4(c) of the
proposed regulations. These explain IRS-approved methods of calculating the amount you
must withdraw. To obtain a copy of this notice, see Mail in chapter 6. This
proposed regulation is published in 2002-33 Internal Revenue Bulletin at page
383. This notice and proposed regulation can also be found in many libraries and IRS
offices.
You must include in income any earnings on the contributions you withdraw. Include the
earnings in income for the year in which you made the contributions, not the year in which
you withdraw them.
Generally, except for any part of a withdrawal that is a return of
nondeductible contributions (basis), any withdrawal of your contributions after the
due date (or extended due date) of your return will be treated as a taxable distribution.
Another exception is the return of an excess contribution as discussed under What Acts
Result in Penalties or Additional Taxes, later.
Early distributions tax. The 10% additional tax on distributions made before you reach age 59½ does
not apply to these tax-free withdrawals of your contributions. However, the
distribution of interest or other income must be reported on Form 5329 and, unless the
distribution qualifies as an exception to the age 59½ rule, it will be subject to this
tax. See Early Distributions under What Acts Result in Penalties or
Additional Taxes, later.
Excess contributions tax. If any part of these contributions is an excess contribution for 2001, it is
subject to a 6% excise tax. You will not have to pay the 6% tax if any 2001 excess
contribution was withdrawn by April 15, 2002 (plus extensions), and if any 2002 excess
contribution is withdrawn by April 15, 2003 (plus extensions). See Excess
Contributions under What Acts Result in Penalties or Additional Taxes,
later.
 You may be able
to treat a contribution made to one type of IRA as having been made to a different type of
IRA. This is called recharacterizing the contribution. See Recharacterizations in chapter
2 for more information.
When Must I Withdraw
IRA Assets?
(Required Distributions)
You cannot keep funds in a traditional IRA indefinitely.
Eventually they must be distributed. If there are no distributions, or if
the distributions are not large enough, you may have to pay a 50% excise tax on the amount
not distributed as required. See Excess Accumulations, later. The requirements
for distributing IRA funds differ, depending on whether you are the IRA owner or the
beneficiary of a decedent's IRA.
Distributions not eligible for rollover. Amounts that must be distributed (required distributions) during a particular
year are not eligible for rollover treatment.
IRA Owners
If you are the owner of a traditional IRA, you must start receiving
distributions from your IRA by April 1 of the year following the year in which you
reach age 70½. April 1 of the year following the year in which you reach age 701/2 is referred to as the required beginning date.
Distributions by the required beginning date. You must receive at least a minimum amount for each year starting with the
year you reach age 70½ (your 701/2 year). If you do not (or
did not) receive that minimum amount in your 70½ year, then you must receive
distributions for your 701/2 year by April 1 of the next year. See Minimum
Distributions, later. If an IRA owner dies after reaching age 70½, but before April
1 of the next year, no minimum distribution is required because death occurred before the
required beginning date.
Even if you begin receiving distributions before you attain age 70½, you must begin
calculating and receiving required minimum distributions by your required beginning date.
Distributions after the required beginning date. The required
minimum distribution for any year after your 70½ year must be made by December 31 of that
later year.
Example. You reach age 70½ on August 20, 2002. For 2002 (your
701/2 year), you must receive the required minimum distribution
from your IRA by April 1, 2003. You must receive the required minimum distribution for
2003 (the first year after your 70½ year) by December 31, 2003.
If you do not
receive your required minimum distribution for 2002 until 2003, both your 2002 and your
2003 distributions will be taxable on your 2003 return.
Minimum Distributions
Minimum distributions from a traditional IRA may be figured
differently depending on whether they are paid out of an individual retirement account
or an individual retirement annuity.
Account. If you are the owner
of a traditional IRA that is an individual retirement account, you or your
trustee must figure the minimum amount required to be distributed each year. See Figuring
the Required Minimum Distribution, later.
Annuity. If your traditional
IRA is an individual retirement annuity, special rules apply to figuring
the required minimum distribution. For more information on rules for annuities, get
section 1.401(a)(9)-6T of the regulations. These temporary regulations can be read in many
libraries and IRS offices.
Change in Marital Status
For purposes of figuring your required minimum distribution, your
marital status is determined as of January 1 of each year. If you are married on
January 1, but get divorced or one of you dies during the year, you are still treated as
married for that year for purposes of determining your applicable distribution period.
However, if you got divorced during the year and change the beneficiary designation on the
IRA, this rule does not apply.
If your spouse is your sole beneficiary, and he or she dies before you, your spouse
will not fail to be your sole beneficiary for the year that he or she died solely because
someone other than your spouse is named a beneficiary for the rest of that year.
Figuring the Required Minimum Distribution
Figure your required minimum distribution for each year by dividing the IRA
account balance (defined later) as of the close of business on December 31 of the
preceding year by the applicable distribution period or life
expectancy.
Distributions during the owner's lifetime (and in the year of the owner's death if
the owner died after his or her required beginning date). Required minimum
distributions during your lifetime, and in the year of your death if you die after your
required beginning date, are based on a distribution period that generally is determined
using Table III (Uniform Lifetime) (For Use by Unmarried Owners and Owners Whose
Spouses Are Not More Than 10 Years Younger) in Appendix C. The distribution
period (which table you use) is not affected by your beneficiary's age unless your sole
beneficiary is your spouse who is more than 10 years younger than you are.
Note. You figure the required minimum distribution for the year
in which an IRA owner dies as if the owner lived for the entire year.
To figure the required minimum distribution for 2003, divide your account balance at
the end of 2002 by the distribution period from the table. This is the distribution period
listed next to your age (as of your birthday in 2003) in Table III in Appendix
C, unless your sole beneficiary is your spouse who is more than 10 years younger than
you. For an example, see Example 1 under IRA account balance, later.
Sole beneficiary spouse who is more than 10 years younger.
If your sole beneficiary is your spouse and your spouse is more than 10 years younger than
you, use the life expectancy from Table II (Joint Life and Last Survivor Expectancy).
The life expectancy to use is the joint life and last survivor expectancy listed where
the row or column containing your age as of your birthday in 2003 intersects with the row
or column containing your spouse's age as of his or her birthday in 2003.
You figure your required minimum distribution for 2003 by dividing your account balance
at the end of 2002 by the life expectancy from Table II (Joint Life and Last Survivor
Expectancy) (For Use by Owners Whose Spouses Are More Than 10 Years Younger) in Appendix
C. For an example, see Example 2 under IRA account balance, later.
Surviving spouse. If you are a surviving spouse who is the
sole beneficiary of your deceased spouse's IRA, you may elect to be treated as the owner
and not as the beneficiary. If you elect to be treated as the owner, you determine the
required minimum distribution (if any) as if you were the owner beginning with the year
you elect or are deemed to be the owner. However, if you become the owner in the year your
deceased spouse died, you are not required to determine the required minimum distribution
for that year using your life; rather, you can take the deceased owner's required minimum
distribution for that year (to the extent it was not already distributed to the owner
before his or her death.)
Distributions for years after the year of the owner's death. If the designated beneficiary is an individual, such as
the owner's spouse or child, required minimum distributions for years after the year of
the owner's death generally are based on the longer of:
- The beneficiary's single life expectancy, or
- The owner's life expectancy as determined under Death on or after required beginning
date, under Beneficiary not an individual, later.
This rule applies whether or not the death occurred before the owner's required
beginning date. If the owner's beneficiary is not an individual (for example, if the
beneficiary is the owner's estate), required minimum distributions for years after the
owner's death depend on whether the death occurred before the owner's required beginning
date.
Date the designated beneficiary is determined. Generally, the designated beneficiary is determined on September 30 of the
calendar year following the calendar year of the IRA owner's death. In order to be
a designated beneficiary, an individual must be a beneficiary as of the date of death. Any
person who was a beneficiary on the date of the owner's death, but is not a beneficiary on
September 30 of the calendar year following the calendar year of the owner's death
(because, for example, he or she disclaimed entitlement or received his or her entire
benefit), will not be taken into account in determining the designated beneficiary.
Death of a beneficiary. If a person who is a beneficiary as
of the owner's date of death dies before September 30 of the year following the year of
the owner's death without disclaiming entitlement to benefits, that individual, rather
than his or her successor beneficiary, continues to be treated as a beneficiary for
determining the distribution period.
Death of surviving spouse. If the designated beneficiary is the owner's surviving spouse, and he or she
dies before he or she was required to begin receiving distributions, the surviving
spouse will be treated as if he or she were the owner of the IRA. However, this rule does
not apply to the surviving spouse of a surviving spouse.
More than one beneficiary. If an IRA has more than one
beneficiary or a trust is named as beneficiary, see Miscellaneous Rules for Required
Minimum Distributions, later.
Beneficiary an individual. To figure the required minimum
distribution for 2003, divide the account balance at the end of 2002 by the appropriate
life expectancy from Table I (Single Life Expectancy) (For Use by Beneficiaries)
in Appendix C. Determine the appropriate life expectancy as follows.
- Spouse as sole designated beneficiary.
Use the life expectancy listed in the table next to the spouse's age (as of the spouse's
birthday in 2003). If the owner died before the year in which he or she reached age
70½, distributions to the spouse do not need to begin until the year in which the owner
would have reached age 70½.
- Other designated beneficiary. Use the life expectancy listed in the
table next to the beneficiary's age as of his or her birthday in the year following the
year of the owner's death, reduced by one for each year since the year following the
owner's death.
A beneficiary who is an individual may be able to elect to take the entire account by
the end of the fifth year following the year of the owner's death. If this election is
made, no distribution is required for any year before that fifth year.
Switch from election to take balance by end of fifth year. If you are a designated beneficiary who is receiving
required minimum distributions over a 5-year period, you may be able to switch to
receiving them over your remaining life expectancy (based on your age in the year
following the death of the owner). To do so, you must determine and withdraw any amounts
that you would have been required to withdraw if you had been using your own life
expectancy from the start. The distributions must be:
- For all years before 2004, and
- Made by the earlier of:
- December 31, 2003, or
- The end of the 5-year period.
Beneficiary not an individual. Determine the required
minimum distribution for 2003 as follows.
- Death on or after required beginning date. Divide the account balance at
the end of 2002 by the appropriate life expectancy from Table I (Single Life
Expectancy) (For Use by Beneficiaries) in Appendix C. Use the life
expectancy listed next to the owner's age as of his or her birthday in the year of death,
reduced by one for each year since the year of death.
- Death before required beginning date. The entire account must be
distributed by the end of the fifth year following the year of the owner's death. No
distribution is required for any year before that fifth year.
IRA account balance. The IRA
account balance is the amount in the IRA at the end of the year preceding the year for
which the required minimum distribution is being figured.
Contributions. Contributions increase the account balance
in the year they are made. If a contribution for last year is not made until after
December 31 of last year, it increases the account balance for this year, but not for last
year. Disregard contributions made after December 31 of last year in determining your
minimum distribution for this year.
Outstanding rollovers and recharacterizations. The IRA
account balance is adjusted by outstanding rollovers and recharacterizations of Roth IRA
conversions that are not in any account at the end of the preceding year.
For a rollover from a qualified plan or another IRA that was not in any account at the
end of the preceding year, increase the account balance of the receiving IRA by the
rollover amount valued as of the date of receipt.
If a conversion contribution or failed conversion contribution is contributed to a Roth
IRA and that amount (plus net income allocable to it) is transferred to another IRA in a
subsequent year as a recharacterized contribution, increase the account balance of the
receiving IRA by the recharacterized contribution (plus allocable net income) for the year
in which the conversion or failed conversion occurred.
Distributions. Distributions reduce the account balance in
the year they are made. If a distribution for last year is not made until after December
31 of last year, it reduces the account balance for this year, but not for last year.
Disregard distributions made after December 31 of last year in determining your minimum
distribution for this year.
Example 1. Laura was born on October 1, 1932. She is an
unmarried participant in a qualified defined contribution plan. She reaches age 70½ in
2003. Her required beginning date is April 1, 2004. As of December 31, 2002, her account
balance was $26,500. No rollover or recharacterization amounts were outstanding. Using Table
III in Appendix C, the applicable distribution period for someone her age
(71) is 26.5 years. Her required minimum distribution for 2003 is $1,000 ($26,500 ÷
26.5). That amount is distributed to her on April 1, 2004.
Example 2. Joe, born October 1, 1931, reached 70½ in 2002. His
wife (his beneficiary) turned 56 in September 2002. He must begin receiving distributions
by April 1, 2003. Joe's IRA account balance as of December 31, 2001, is $30,100. Because
Joe's wife is more than 10 years younger than Joe, Joe uses Table II in Appendix
C. Based on their ages at year end (December 31, 2002), the joint life expectancy for
Joe (age 71) and his wife (age 56) is 30.1 years. The required minimum distribution for
2002, Joe's first distribution year (his 70½ year), is $1,000 ($30,100 ÷ 30.1). This
amount is distributed to Joe on April 1, 2003.
Which Table Do I Use To Determine
My Required Minimum Distribution?
There are three different tables. You use only one of them to
determine your annual minimum distribution for each traditional IRA. Determine which one
to use as follows.
Reminder. In using the tables for lifetime distributions,
marital status is determined as of January 1 each year. Divorce or death after January 1
is disregarded until the next year unless you divorce during the year and change your
beneficiary designation.
Table I (Single Life Expectancy) (For Use by Beneficiaries) in Appendix C.
If you are the owner's sole designated beneficiary,
you do not need to take distributions until the year in which the owner would have reached
age 70½ if both of the following apply.
- You were the owner's spouse when he or she died, and
- The owner had not reached age 70½ when he or she died.
Once that year occurs, or if the owner had reached the age of 70½, use Table I
for years after the year of the owner's death.
If the IRA owner has died and you are an individual, such as the owner's child, and you
are the owner's designated beneficiary, but you are not both the owner's spouse and sole
designated beneficiary, use Table I for years after the year of the owner's
death.
If the IRA owner has died and you are the owner's estate or otherwise not an
individual, and the owner died on or after the required beginning date, use Table I
for years after the year of the owner's death.
Table II (Joint and Last Survivor Expectancy) (For Use by Owners Whose Spouses Are
More Than 10 Years Younger) in Appendix C. If you are the IRA owner, and the periodic payments are for your life and the
life of your spouse who is more than 10 years younger than you, use Table II.
This table is also used for 2002 if the owner died in 2002 after the required beginning
date and the owner would have used this table had he or she not died.
Table III (Uniform Lifetime) (For Use by Unmarried Owners and Owners Whose Spouses
Are Not More Than 10 Years Younger) in Appendix C. Use Table III if you are the IRA owner, unless your spousal
beneficiary is more than 10 years younger than you are. This table is also used for
2002 if the owner died in 2002 after the required beginning date and the owner would have
used this table had he or she not died.
No table. If the IRA owner has died and the designated beneficiary
is not an individual, and the owner died before the required beginning date, do not use a
table. Take the entire distribution by the end of the fifth year following the year of the
owner's death.
This rule applies if there is no designated beneficiary by September 30 of the year
following the year of the IRA owner's death.
What Age(s) Do I Use With the Table(s)?
The age or ages to use with the tables are as follows.
Table I (Single Life Expectancy) (For Use by Beneficiaries) in Appendix C.
If you are a designated beneficiary figuring your first distribution,
use your age as of your birthday in the year distributions must begin. This is
usually the calendar year immediately following the calendar year of the owner's death. If
you are a spouse who is a sole designated beneficiary, it may be the year in which the
owner would have reached age 70½. After the first distribution year, your life expectancy
is reduced by one for each subsequent year.
If there is no designated beneficiary, and the owner's death was on or after the
required beginning date, use the owner's life expectancy for his or her age as of his or
her birthday in the year of death, and reduce it by one for each subsequent year.
Table II (Joint and Last Survivor Expectancy) (For Use by Owners Whose Spouses Are
More Than 10 Years Younger) in Appendix C. For your first distribution by the required beginning date, use your age and
the age of your designated beneficiary as of your birthdays in the year you become
age 70½. Your combined life expectancy is at the intersection of your ages.
If you are figuring your required minimum distribution for 2003, use your ages as of
your birthdays in 2003. For each subsequent year, use your and your spouse's ages as of
your birthdays in the subsequent year.
Table III (Uniform Lifetime) (For Use by Unmarried Owners and Owners Whose Spouses
Are Not More Than 10 Years Younger) in Appendix C. For your first distribution by your required beginning date, use your age as
of your birthday in the year you become age 70½.
If you are figuring your required minimum distribution for 2003, use your age as of
your birthday in 2003. For each subsequent year, use your age as of your birthday in the
subsequent year.
Miscellaneous Rules for
Required Minimum Distributions
The following rules may apply to your required minimum distribution.
Installments allowed. The
yearly required minimum distribution can be taken in a series of installments (monthly,
quarterly, etc.) as long as the total distributions for the year are at least as
much as the minimum required amount.
More than one IRA. If you have more than one traditional IRA, you
must determine the required minimum distribution separately for each IRA. However, you can
total these minimum amounts and take the total from any one or more of the IRAs.
Example. Sara, born August 1, 1931, became 70½ on February 1,
2002. She has two traditional IRAs. She must begin receiving her IRA distributions by
April 1, 2003. On December 31, 2001, Sara's account balance from IRA A was $10,000; her
account balance from IRA B was $20,000. Sara's brother, age 64 as of his birthday in 2002,
is the beneficiary of IRA A. Her husband, age 78 as of his birthday in 2002, is the
beneficiary of IRA B.
Sara's required minimum distribution from IRA A is $377 ($10,000 ÷ 26.5 (the
distribution period for age 71 per Table III). The amount of the required minimum
distribution from IRA B is $755 ($20,000 ÷ 26.5). The required minimum distribution that
must be withdrawn by Sara from her IRA accounts by April 1, 2003, is $1,132 ($377 + $755).
More than minimum received. If, in any year, you receive more than
the required minimum amount for that year, you will not receive credit for the additional
amount when determining the minimum required amounts for future years. This does not mean
that you do not reduce your IRA account balance. It means that you cannot count the amount
distributed in one year that is more than the amount required to be distributed as a
distribution of an amount required to be distributed in a later year. However, any amount
distributed in your 70½ year will be credited toward the amount that must be distributed
by April 1 of the following year.
Example 1. Justin became 70½ on December 15, 2002. Justin's IRA
account balance on December 31, 2001, was $38,400. He figured his required minimum
distribution for 2002 was $1,401 ($38,400 ÷ 27.4). By December 31, 2002, he had actually
received distributions totaling $3,600, $2,199 more than was required. Justin cannot use
that $2,199 to reduce the amount he is required to withdraw for 2003, but his IRA account
balance must be reduced by the full $3,600 to figure his required minimum distribution for
2003. Justin's reduced IRA account balance on December 31, 2002, was $34,800. Justin
figured his required minimum distribution for 2003 is $1,313 ($34,800 ÷ 26.5). During
2003, he must receive distributions of at least that amount.
Example 2. Assume the same facts as in Example 1, except that
Justin received the distribution of $3,600 on March 15, 2003. Because the distribution was
received before April 1, 2003, he can count $1,466 of that distribution as his required
distribution for his 70½ year (2002). He can count the remainder ($2,134) as part of his
required distribution for 2003. To figure his required distribution for 2003, Justin must
reduce his IRA account balance by $1,466, rather than $3,600, to figure his required
minimum distribution for 2003. Therefore, his reduced IRA account balance as of December
31, 2002, was $36,934. His required minimum distribution for 2003 is $1,394, rather than
the $1,313 figured in Example 1. Because Justin has already received a distribution of
$2,134 for 2003, no more is needed to satisfy his minimum distribution requirement for
2003.
Multiple individual beneficiaries. If as of September 30 of the year following the year in which the owner dies
there is more than one beneficiary, the beneficiary with the shortest life
expectancy will be the designated beneficiary if both of the following apply.
- All of the beneficiaries are individuals, and
- The account or benefit has not been divided into separate accounts or shares for each
beneficiary.
Separate accounts. Separate accounts with separate
beneficiaries can be set up at any time, either before or after the owner's required
beginning date. If separate accounts with separate beneficiaries are set up, the separate
accounts are not combined for required minimum distribution purposes until the year after
the separate accounts are established, or the date of death if later. As a general rule,
the required minimum distribution rules separately apply to each account. However, the
distribution period for an account is separately determined (disregarding beneficiaries of
the other account(s)) only if the account was set up by the end of the year following the
year of the owner's death.
Trust as beneficiary. A trust
cannot be a designated beneficiary even if it is a named beneficiary. However, the
beneficiaries of a trust will be treated as having been designated as beneficiaries if all
of the following are true.
- The trust is a valid trust under state law, or would be but for the fact that there is
no corpus.
- The trust is irrevocable or will, by its terms, become irrevocable upon the death of the
owner.
- The beneficiaries of the trust who are beneficiaries with respect to the trust's
interest in the owner's benefit are identifiable from the trust instrument.
- The IRA trustee, custodian, or issuer has been provided with either a copy of the trust
instrument with the agreement that if the trust instrument is amended, the administrator
will be provided with a copy of the amendment within a reasonable time, or
all of the following.
- A list of all of the beneficiaries of the trust (including contingent and remaindermen
beneficiaries with a description of the conditions on their entitlement).
- Certification that, to the best of the owner's knowledge, the list is correct and
complete and that the requirements of (1), (2), and (3) above, are met.
- An agreement that, if the trust instrument is amended at any time in the future, the
owner will, within a reasonable time, provide to the IRA trustee, custodian, or issuer
corrected certifications to the extent that the amendment changes any information
previously certified.
- An agreement to provide a copy of the trust instrument to the IRA trustee, custodian, or
issuer upon demand.
The deadline for providing the beneficiary documentation to the IRA trustee, custodian,
or issuer is October 31 of the year following the year of the owner's death.
If the beneficiary of the trust is another trust and the above requirements for both
trusts are met, the beneficiaries of the other trust will be treated as having been
designated as beneficiaries for purposes of determining the distribution period.
Annuity distributions from an insurance company.
Special rules apply if you receive distributions from your traditional
IRA as an annuity purchased from an insurance company. See sections 1.401(a)(9)-6T
and 54.4974-2 of the regulations. These regulations can be found in many libraries and IRS
offices.
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