Tax Q&A;: The 701/2 Rule
This daily tax season column publishes questions from readers and answers from local members of the California Society of Certified Public Accountants.
Q. My husband, who is 70, has about $200,000 in 11 IRA accounts and tax-deferred annuities. Does he have to start drawing out 3% from each account under the 70 1/2 rule, or can he lump the portfolios together to determine the minimum distribution and then draw the required amount out of one account? We are interested in drawing out the least amount at this time. Also, we would like to know the number of the IRS booklet in which we could read more about the rules.
A. The 70 1/2 rule says taxpayers must start receiving minimum distributions from their IRAs by April 1 of the year after the year in which they reach age 70 1/2.
Your husband must include all of his IRA accounts when determining the required minimum distribution, but he can take the total distribution from just one account.
You calculate the minimum distribution for each year by dividing the total IRA account balances as of the close of business on Dec. 31 of the preceding year by the applicable life expectancy. For example, the joint and survivor life expectancy for you and your husband is 19.6 years. If he elects to take minimum distributions using your joint life expectancy and the total balance in your accounts is $200,000, the withdrawal amount would be $10,204.
The rules for annuity distributions are subject to the rules of the annuity contract and may be complex. However, if your annuities are held in traditional IRAs, you can select a series of equal payments over your lives (or joint life expectancy). A yearly distribution is required.
You should consider combining some of the IRAs to simplify matters. You can transfer an IRA from trustee to trustee without penalties or income tax consequences. Further information can be obtained by ordering Publication No. 590, Individual Retirement Arrangements, from the Internal Revenue Service. Call (800) 829-3676 to order the forms and publication.
--KIRSTEN ALMAAS LOUMEAU, CPA, Long Beach
For more information on taxes and to see other questions and answers in this series, go to The Times’ Web site at https://www.latimes.com/taxes. To find a CPA, visit the California Society of CPAs at https://www.calcpa.org.
