When Can I Withdraw or Use IRA Assets?

Because a traditional IRA is a tax-favored means of saving for your retirement, there are rules limiting use of your IRA assets and distributions from it. Violation of the rules generally results in additional taxes in the year of violation. See What Acts Result in Penalties?, later.

Age 59 1/2 Rule

Generally, if you are under age 59 1/2 you must pay a 10% additional tax on the distribution of any assets (money or other property) from your traditional IRA. Distributions before you are age 59 1/2 are called early distributions. The additional tax is 10% of the part of the distribution that you have to include in gross income. It is in addition to any regular income tax on the amount you have to include in gross income. A number of exceptions to this rule are discussed below under Exceptions. Also see Contributions Returned Before the Due Date, later, and Early Distributions under What Acts Result in Penalties?, later.

You may have to pay a 25%, rather than 10%, additional tax if you receive distributions from a SIMPLE IRA before you are age 59 1/2. See Additional Tax on Early Distributions in chapter 5.

Note. If you receive a distribution from a traditional IRA that includes a return of nondeductible contributions, the 10% additional tax does not apply to the nontaxable part of the distribution. See Figuring the Nontaxable and Taxable Amounts under Are Distributions Taxable?, later in this chapter.

After age 59 1/2 and before age 70 1/2. After you reach age 59 1/2, you can receive distributions from your traditional IRA without having to pay the 10% additional tax. Even though you can receive distributions after you reach age 59 1/2, distributions are not required until you reach age 70 1/2. See When Must I Withdraw IRA Assets (Required Distributions)?, later in this chapter.

Exceptions

There are several exceptions to the age 59 1/2 rule. You may qualify for an exception if you are in one of the following situations.

• You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income.
• The distributions are not more than the cost of your medical insurance.
• You are disabled.
• You are the beneficiary of a deceased IRA owner.
• You are receiving distributions in the form of an annuity.
• The distributions are not more than your qualified higher education expenses.
• You use the distributions to buy, build, or rebuild a first home.
• The distribution is due to an IRS levy of the qualified plan.

Most of these exceptions are explained below.

Note. Distributions that are timely and properly rolled over, as discussed earlier, are not subject to either regular income tax or the 10% additional tax. Certain withdrawals of excess contributions after the due date of your return are also tax free and not subject to the 10% additional tax. (See Excess Contributions Withdrawn After Due Date of Return under What Acts Result in Penalties?, later.) This also applies to transfers incident to divorce, as discussed earlier under Can I Move Retirement Plan Assets?.

Unreimbursed medical expenses. Even if you are under age 59 1/2, you do not have to pay the 10% additional tax on distributions that are not more than:

1. The amount you paid for unreimbursed medical expenses during the year of the distribution, minus
2. 7.5% of your adjusted gross income for the year of the distribution.

You can only take into account unreimbursed medical expenses that you would be able to include in figuring a deduction for medical expenses on Schedule A, Form 1040. You do not have to itemize your deductions to take advantage of this exception to the 10% additional tax.

Medical insurance. Even if you are under age 59 1/2, you may not have to pay the 10% additional tax on distributions from your traditional IRA during the year that are not more than the amount you paid during the year for medical insurance for yourself, your spouse, and your dependents. You will not have to pay the tax on these amounts if all four of the following conditions apply.

1. You lost your job.
2. You received unemployment compensation paid under any federal or state law for 12 consecutive weeks.
3. You receive the distributions during either the year you received the unemployment compensation or the following year.
4. You receive the distributions no later than 60 days after you have been reemployed.

Disabled. If you become disabled before you reach age 59 1/2, any distributions from your traditional IRA because of your disability are not subject to the 10% additional tax.

You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long continued and indefinite duration.

Beneficiary. If you die before reaching age 59 1/2, the assets in your traditional IRA can be distributed to your beneficiary or to your estate without either having to pay the 10% additional tax.

However, if you inherit a traditional IRA from your deceased spouse and elect to treat it as your own (as discussed under What If I Inherit an IRA?, earlier), any distribution you later receive before you reach age 59 1/2 may be subject to the 10% additional tax.

Annuity. You can receive distributions from your traditional IRA that are part of a series of substantially equal payments over your life (or your life expectancy), or over the lives (or the joint life expectancies) of you and your beneficiary, without having to pay the 10% additional tax, even if you receive such distributions before you are age 59 1/2. You must use an IRS-approved distribution method and you must take at least one distribution annually for this exception to apply. See Figuring the Minimum Distribution, later, for one IRS-approved distribution method, generally referred to as the "life expectancy method." This method, when used for this purpose, results in the exact amount required to be distributed, not the minimum amount.

There are two other IRS-approved distribution methods that you can use. They are generally referred to as the "amortization method" and the "annuity factor method." These two methods are not discussed in this publication because they are more complex and generally require professional assistance. See IRS Notice 89-25 in Internal Revenue Cumulative Bulletin 1989-1 for more information on these two methods. This notice can be found in many libraries and IRS offices.

The payments under this exception must continue for at least 5 years, or until you reach age 59 1/2, whichever is the longer period. This 5-year rule does not apply if a change from an approved distribution method is made because of the death or disability of the IRA owner.

If the payments under this exception are changed before the end of the above required periods for any reason other than the death or disability of the IRA owner, he or she will be subject to the 10% additional tax.

For example, if you received a lump-sum distribution of the balance in your traditional IRA before the end of the required period for your annuity distributions and you did not receive it because you were disabled, you would be subject to the 10% additional tax. The tax would apply to the lump-sum distribution and all previous distributions made under the exception rule.

Higher education expenses. Even if you are under age 59 1/2, if you paid expenses for higher education during the year, part (or all) of any distribution may not be subject to the 10% additional tax. The part not subject to the tax is generally the amount that is not more than the qualified higher education expenses (defined later) for the year for education furnished at an eligible educational institution (defined later). The education must be for you, your spouse, or the children or grandchildren of you or your spouse.

When determining the amount of the distribution that is not subject to the 10% additional tax, include qualified higher education expenses paid with any of the following funds.

• An individual's earnings.
• A loan.
• A gift.
• An inheritance given to either the student or the individual making the withdrawal.
• Personal savings (including savings from a qualified state tuition program).

Do not include expenses paid with any of the following funds.

• Tax-free distributions from an education IRA.
• Tax-free scholarships, such as a Pell grant.
• Tax-free employer-provided educational assistance.
• Any tax-free payment (other than a gift, bequest, or devise) due to enrollment at an eligible educational institution.

Qualified higher education expenses. Qualified higher education expenses are tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution. In addition, if the individual is at least a half-time student, room and board are qualified higher education expenses.

Eligible educational institution. This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in the student aid programs administered by the Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

First home. Even if you are under age 59 1/2, you do not have to pay the 10% additional tax on distributions you receive to buy, build, or rebuild a first home. To qualify for treatment as a first-time homebuyer distribution, the distribution must meet all the following requirements.

1. It must be used to pay qualified acquisition costs (defined later) before the close of the 120th day after the day you received it.
2. It must be used to pay qualified acquisition costs for the main home of a first-time homebuyer (defined later) who is any of the following.
   1. Yourself.
   2. Your spouse.
   3. Your or your spouse's child.
   4. Your or your spouse's grandchild.
   5. Your or your spouse's parent or other ancestor.
3. When added to all your prior qualified first-time homebuyer distributions, if any, the total distributions cannot be more than $10,000.

If both you and your spouse are first-time homebuyers (defined later), each of you can receive distributions up to $10,000 for a first home without having to pay the 10% additional tax.

Qualified acquisition costs. Qualified acquisition costs include the following items.

1. Costs of buying, building, or rebuilding a home.
2. Any usual or reasonable settlement, financing, or other closing costs.

First-time homebuyer. Generally, you are a first-time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild. If you are married, your spouse must also meet this no-ownership requirement.

Date of acquisition. The date of acquisition is the date that:

1. You enter into a binding contract to buy the main home for which the distribution is being used, or
2. The building or rebuilding of the main home for which the distribution is being used begins.

Contributions Returned Before the Due Date

If you made IRA contributions for 2000, 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 the following apply.

• You did not take a deduction for the contribution.
• You also withdraw any interest or other income earned on the contribution. Beginning in 2000, 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 for any reason unable to calculate the amount you must withdraw, get IRS Notice 2000-39. The notice explains the IRS-approved method of calculating the amount you must withdraw.

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 withdrawn contributions.

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?, later.

Early distributions tax. The 10% additional tax on distributions made before you reach age 59 1/2 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 59 1/2 rule, it will be subject to this tax. See Early Distributions under What Acts Result in Penalties?, later.

Excess contributions tax. If any part of these contributions is an excess contribution for 1999, it is subject to a 6% excise tax. You will not have to pay the 6% tax if any 1999 excess contribution was withdrawn by April 17, 2000 (plus extensions), and if any 2000 excess contribution is withdrawn by April 16, 2001 (plus extensions). See Excess Contributions under What Acts Result in Penalties?, 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:

1. Receive the entire balance in your IRA or
2. Start receiving periodic distributions from your IRA

by April 1 of the year following the year in which you reach age 70 1/2. This date is referred to as the required beginning date.

Periodic distributions. If you do not receive the entire balance in your traditional IRA by the required beginning date, you must start to receive periodic distributions over one of the following periods:

1. Your life,
2. The lives of you and your designated beneficiary (defined later),
3. A period that does not extend beyond your life expectancy, or
4. A period that does not extend beyond the joint life and last survivor expectancy of you and your designated beneficiary.

See Determining Life Expectancy, later, for more details.

Distributions by the required beginning date. If you choose to receive periodic distributions, you must receive at least a minimum amount for each year starting with the year you reach age 70 1/2 (your 70 1/2 year). If you do not (or did not) receive that minimum amount in your 70 1/2 year, then you must receive distributions for your 70 1/2 year by April 1 of the next year. See Minimum Distributions, later.

Distributions after the required beginning date. The required minimum distribution for any year after your 70 1/2 year must be made by December 31 of that later year.

Example. You reach age 70 1/2 on August 20, 2000. For 2000 (your 70 1/2 year), you must receive the required minimum distribution from your IRA by April 1, 2001. You must receive the required minimum distribution for 2001 (the first year after your 70 1/2 year) by December 31, 2001.

Designated beneficiary. A designated beneficiary, for these purposes, is any individual you name to receive your traditional IRA upon your death.

Multiple individual beneficiaries. If you have more than one beneficiary and all are individuals, the beneficiary with the shortest life expectancy will be the designated beneficiary used to determine the period over which you must receive distributions. Also, see Minimum Distribution Incidental Benefit (MDIB) Requirement, later.

Changing the designated beneficiary. You can change your designated beneficiary before or after the required beginning date. If, after the distributions period has been determined, you name a new designated beneficiary with a shorter life expectancy than the individual you are replacing, you must refigure the period over which you must receive distributions for subsequent years using the life expectancy of the new designated beneficiary. The new period is the period that would have been the remaining joint life and last survivor expectancy of you and the new designated beneficiary if that beneficiary had been designated on the required beginning date. See Determining Life Expectancy, later. If the new designated beneficiary has a longer life expectancy than the individual you are replacing, you cannot recalculate the period over which you must receive distributions, except as provided under Refiguring life expectancy elected, later.

Naming a trust. Generally, if you name a trust to replace your designated beneficiary after the required beginning date, you must refigure the period over which you must receive distributions for subsequent years using only your remaining life expectancy.

Beneficiaries

If you are the beneficiary of a decedent's traditional IRA, the requirements for distributions from that IRA depend on whether distributions that satisfy the minimum distributions requirement have begun. See Distributions begun before owner's death and Owner dies before distributions have begun, later.

Determining when distributions have begun. For purposes of determining the requirements for distributions from a decedent's traditional IRA, distributions to the deceased owner generally are considered as having begun on the required beginning date, even if payments actually began before that date. This means that if the IRA owner dies before the required beginning date, distributions generally are not considered to have begun before the owner's death.

Exception. If distributions in the form of an annuity irrevocably began to the IRA owner before the required beginning date and began over a permitted period, distributions are considered to have begun before the owner's death, even if the owner died before the required beginning date. This exception applies only if the annuity provided for periodic distributions at intervals of no more than 1 year over one of the permitted periods listed earlier under Periodic distributions.

Distributions begun before owner's death. If periodic distributions that satisfy the minimum distribution requirements have begun and the owner dies, any undistributed amounts must be distributed at least as rapidly as under the method being used at the owner's death.

Exception. This rule does not apply if the designated beneficiary is the owner's surviving spouse who becomes the new owner by choosing to treat the IRA as his or her own IRA. See What If I Inherit an IRA?, earlier. In that case, the surviving spouse can designate beneficiaries and should follow the required distribution rules for owners of traditional IRAs as discussed under IRA Owners, earlier.

Owner dies before distributions have begun. If the owner dies before distributions that satisfy the minimum distribution requirements have begun, the entire interest must be distributed under one of the following two rules.

• Rule 1. By December 31 of the fifth year following the year of the owner's death.
• Rule 2. Over the life of the designated beneficiary or over a period not extending beyond the life expectancy of the designated beneficiary. See Table I (Single Life Expectancy) in Appendix E.

The terms of the traditional IRA can specify whether rule 1 or 2 applies, or they can permit either the owner or beneficiary to choose which rule applies. If the owner or beneficiary can choose which rule applies, the choice must generally be made by December 31 of the year following the year of the owner's death. This is because distributions generally must begin under rule 2 by that date.

Under rule 2, at least a minimum amount must be distributed each year.

No rule specified or chosen. If no rule has been specified or chosen, distribution must be made under rule 2 if the beneficiary is the surviving spouse (and he or she did not choose to treat the traditional IRA as his or her own), or under rule 1 if the beneficiary is not the surviving spouse.

Rule 2 picked and spouse is not the beneficiary. If rule 2 has been specified or chosen and the beneficiary is not the surviving spouse, distribution must begin by December 31 of the year following the year of the owner's death.

Rule 2 picked and spouse is the beneficiary. If rule 2 has been specified or chosen and the beneficiary is the surviving spouse (and he or she did not choose to treat the IRA as his or her own), distribution must begin by the later of the following two dates.

• December 31 of the year the IRA owner would have reached age 70 1/2.
• December 31 of the year following the year of the owner's death.

Spouse dies before receiving distribution. A special rule applies if the surviving spouse dies before the date distributions to the surviving spouse must begin. In this case, distributions may be made to the spouse's beneficiary as if the spouse were the IRA owner.

Spouse remarried. However, if the surviving spouse has remarried since the owner's death and the new spouse is designated as the spouse's beneficiary, the special rules that apply to surviving spouses would not apply to the new spouse.

Minimum Distributions

If you are the owner of a traditional IRA that is an individual retirement account, you must figure the minimum amount required to be distributed each year. See Figuring the Minimum Distribution, next.

If your traditional IRA is an individual retirement annuity, special rules apply to figuring the minimum distribution required. For more information on rules for annuities, get proposed regulation sections 1.401(a)(9)-1, 1.401(a)(9)-2, and 1.408-8. These regulations can be read in many libraries and IRS offices.

Figuring the 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 life expectancy (defined later). If you have a beneficiary other than your spouse who is more than 10 years younger than you, the distribution must satisfy the minimum distribution incidental benefit (MDIB) requirement discussed later. If this is the case, compare the applicable divisor and the applicable life expectancy and use the lower number. (See Table for Determining Applicable Divisor for MDIB in Appendix E.)

Note. Although all required distributions must satisfy the MDIB requirement, as discussed later, the comparison involved in satisfying the requirement makes a difference in the amount required to be distributed only if you have a beneficiary, other than your spouse, who is more than 10 years younger than you. If the only beneficiary of your account is your spouse, even if your spouse is more than 10 years younger, the MDIB requirement is satisfied by figuring the distribution as if the MDIB requirement did not apply.

IRA account balance. The IRA account balance is the amount in the traditional IRA at the end of the immediately preceding year with the following adjustments.

1. Contributions. The amount in the IRA at the end of the preceding year is increased by any contributions for the preceding year that were made in the year for which the minimum distribution is being figured. For this purpose, a rollover contribution received in the year after it was distributed from the other IRA is deemed received in the year it was distributed.
2. Distributions. For purposes of figuring the minimum distribution for the second distribution year only, the amount in the IRA at the end of the preceding year is reduced by any distribution made in that year to satisfy the minimum distribution requirements for the first distribution year. The first distribution year is the year the owner reaches age 70 1/2. The next year is the second distribution year.

See Example 1, later.

Applicable life expectancy. The applicable life expectancy is:

• The owner's remaining life expectancy (single life expectancy),
• The remaining joint life expectancy of the owner and the owner's designated beneficiary, or
• If the owner dies before distributions have begun, the remaining life expectancy of the designated beneficiary.

For more information, see Determining Life Expectancy, later.

Example 1. Joe, born October 1, 1929, reached 70 1/2 in 2000. His wife (his beneficiary) turned 56 in September 2000. He must begin receiving distributions by April 1, 2001. Joe's IRA account balance as of December 31, 1999, is $29,000. Based on their ages at year end (December 31, 2000), the joint life expectancy for Joe (age 71) and his beneficiary (age 56) is 29 years. (See Table II in Appendix E.) The required minimum distribution for 2000, Joe's first distribution year (his 70 1/2 year), is $1,000 ($29,000 divided by 29). This amount is distributed to Joe on April 1, 2001.

Joe's IRA account balance as of December 31, 2000, is $29,725.

To figure the minimum amount that must be distributed for 2001, the IRA account balance (as of December 31, 2000) of $29,725 is reduced by the $1,000 minimum required distribution for 2000 that was made on April 1, 2001. The account balance for determining the required distribution for 2001 is $28,725.

Determining Life Expectancy

Life expectancies are determined using life expectancy tables like Tables I and II in Appendix E. More extensive tables are in Publication 939.

How do I use the tables? If the periodic payments are for your life only, use the applicable life expectancy in Table I (Single Life Expectancy) to determine your annual minimum distribution. If the payments are for the lives of you and your designated beneficiary, use the applicable life expectancy in Table II (Joint Life and Last Survivor Expectancy).

If you designate as your beneficiary someone (other than your spouse) who is more than 10 years younger than you and the distributions are not made as annuity payments under an annuity contract, be sure to see Minimum Distribution Incidental Benefit (MDIB) Requirement, later.

What ages do I use? For distributions beginning by the required beginning date (discussed at Periodic distributions under IRA Owners, earlier), determine life expectancies using your age and the age of your designated beneficiary (assuming you are using Table II) as of your birthdays in the year you become age 70 1/2.

Owner dies before distributions begin. If the owner dies before the owner's required beginning date, the life expectancy of the designated beneficiary is determined using Table I and the age as of the beneficiary's birthday in the year distributions must begin. See Owner dies before distributions have begun, earlier, for more information.

Life expectancy for subsequent year distributions. For years following the year for which you first determine life expectancy, you must use one of the following two methods of determining life expectancy.

1. Term certain method. Under this method you reduce the life expectancy determined for the first year by one for each year that has passed since that first year. If your designated beneficiary dies, you continue to use the joint life expectancy (reduced by one each year) that you were using before your designated beneficiary died.
2. Refiguring life expectancy each year. Under this method, you refigure your (or your spouse's) life expectancy each year as explained next.

Election to refigure life expectancy. Your traditional IRA terms may permit you and your spouse to elect whether to use the term certain method or to refigure one or both of your life expectancies. You must make this election by the date of the first required minimum distribution. See Required beginning date, earlier. If your IRA permits the election, your IRA trustee should be able to help you make the election. There is no IRS form required for this election.

Refiguring life expectancy elected. If you own a traditional IRA and elect to refigure your life expectancy (and that of your spouse, if it applies), it must be refigured annually unless your IRA terms provide otherwise. If you refigure life expectancy annually, the reduction of it by one for each year after it was initially determined (the term certain method) does not apply.

Refiguring your life expectancy. To refigure your life expectancy for each year, use your age as of your birthday during the year. Then find your "refigured" life expectancy amount on Table I.

Refiguring joint life and last survivor expectancy. To refigure the joint life and last survivor expectancy of you and your spouse for each year, use your and your spouse's ages as of your birthdays during the year. Then find your "refigured" life expectancy amount on Table II.

Beneficiary not spouse or choosing not to refigure. If your designated beneficiary is not your spouse or if either (but not both) you or your spouse elect not to refigure, do not use this method to refigure your life expectancy. You must use a special computation method that is discussed under Minimum Distribution Incidental Benefit (MDIB) Requirement, and illustrated in Example 3, later.

You can use the worksheet provided at the bottom of Appendix A for determining your required distribution whether or not you refigure life expectancy.

If you or your spouse dies. If the joint life expectancy of you and your spouse is refigured annually and either of you dies, then only the survivor's life expectancy is used to figure distributions for the years after the year in which the death occurred.

If you and your spouse die. If the life expectancies of both you and your spouse are refigured and both of you die after the date distributions must start, the entire interest must be distributed before the last day of the year following the year of the second death.

If you die and your designated beneficiary is not your spouse. If your life expectancy is being refigured annually and you die, then only the life expectancy of the designated beneficiary is used to determine distributions for the years after the year in which your death occurs. The beneficiary's life expectancy must be determined in the same way as before your death, except that neither Table II nor the MDIB requirement (discussed next) applies after your death. (See Example 3, later.) Using Example 3, steps 1 through 4, and assuming Joe died in 1999, Joe's brother's life expectancy after Joe's death would be 25.9, the amount from Table I in step 4 of the example.

This rule also applies if your spouse is your designated beneficiary and his or her life expectancy is not refigured annually.

Further information. The above rules are explained more fully in sections 1.401(a)(9)-1, 1.401(a)(9)-2, and 1.408 of the proposed Income Tax Regulations. These regulations can be read in many libraries and IRS offices.

Minimum Distribution Incidental Benefit (MDIB) Requirement

Distributions from a traditional IRA during the owner's lifetime must satisfy the MDIB requirement. This is to ensure that the IRA is used primarily to provide retirement benefits to the IRA owner. After the owner's death, only "incidental" benefits are expected to remain for distribution to the owner's beneficiary (or beneficiaries).

Spouse is beneficiary. If your spouse is your only beneficiary, you will satisfy the MDIB requirement if you satisfy the general minimum distribution requirements discussed earlier.

If you have two or more beneficiaries, including your spouse, the rule for spouses in the preceding paragraph applies only if your spouse's portion of your benefit is in a separate account.

Nonspouse beneficiary more than 10 years younger. If you have a beneficiary other than your spouse who is more than 10 years younger than you, there are three additional steps to figure your required minimum distribution that satisfies the MDIB requirement.

1. Find the applicable divisor for a person your age in Appendix E under Table for Determining Applicable Divisor for MDIB. Use your age as of your birthday in the year that you are figuring the minimum distribution.
2. Compare your applicable divisor and your applicable life expectancy (explained at Figuring the Minimum Distribution, earlier) for the year, and determine which number is smaller.
3. Divide the IRA account balance (defined under Figuring the Minimum Distribution, earlier) as of the close of business of the December 31 of the preceding year by the smaller of your applicable divisor or your applicable life expectancy. This is your required minimum distribution.

Example 2. Assume the same facts as in Example 1, earlier, except that Joe's beneficiary is his brother. Because Joe's beneficiary is not his spouse, he must use the Table for Determining Applicable Divisor for MDIB (in Appendix E) and compare the applicable divisor from that table to the life expectancy determined using Table II (Joint Life and Last Survivor Expectancy) in Appendix E. Joe must use the smaller number from the tables. In this example, the required minimum distribution for 2000 is $1,146 ($29,000 divided by 25.3) instead of the $1,000 computed in Example 1. Joe's adjusted December 31, 2000, account balance to be used for determining the required distribution for 2001 is $28,579 ($29,725 minus $1,146).

Example 3. Assume the same facts as in Example 2, except that, because Joe's IRA terms do not provide otherwise, he must refigure life expectancies to figure his required minimum distribution for 2001. Joe's minimum distribution for 2001 is figured by dividing his adjusted account balance as of December 31, 2000 ($28,579) by his and his brother's joint life and last survivor expectancy. Their joint life and last survivor expectancy can be refigured as follows:

Joe's required minimum distribution for 2001, using the refigured life expectancy (line 8 above), is $1,171 ($28,579 divided by 24.4).

Effect of the IRA owner's death. The MDIB requirement does not apply to distributions in years after the death of the original IRA owner. See If you die and your designated beneficiary is not your spouse under Refiguring life expectancy elected, earlier.

Further information. Required distribution rules are explained more fully in sections 1.401(a)(9)-1, 1.401(a)(9)-2, and 1.408 of the proposed Income Tax Regulations. These regulations can be found in many libraries and IRS offices.

Miscellaneous Rules for Minimum Distributions

The following rules may apply to your minimum distribution.

Installments allowed. The yearly minimum required 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, 1929, became 70 1/2 on February 1, 2000. She has two traditional IRAs. She must begin receiving her IRA distributions by April 1, 2001. On December 31, 1999, 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 2000, is the beneficiary of IRA A. Her husband, age 78 as of his birthday in 2000, is the beneficiary of IRA B.

Sara's required minimum distribution from IRA A is $427 ($10,000 divided by 23.4, the joint life and last survivor expectancy of Sara and her brother per Table II in Appendix E). The amount of the required minimum distribution from IRA B is $1,143 ($20,000 divided by 17.5, the joint life and last survivor expectancy of Sara and her husband per Table II in Appendix E). The required minimum distribution that must be withdrawn by Sara from her IRA accounts by April 1, 2001, is $1,570 ($427 plus $1,143).

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 required minimum 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 70 1/2 year will be credited toward the amount that must be distributed by April 1 of the following year.

Example 1. Justin became 70 1/2 on December 15, 2000. Justin's IRA account balance on December 31, 1999, was $38,400. He figured his required minimum distribution for 2000 was $2,400 ($38,400 divided by 16). By December 31, 2000, he had actually received distributions totaling $3,600, $1,200 more than was required. Justin cannot use that $1,200 to reduce the amount he is required to distribute for 2001, but his IRA account balance must be reduced by the full $3,600 to figure his required minimum distribution for 2001. Justin's reduced IRA account balance on December 31, 2000, was $34,800. The terms of Justin's IRA permit him to use the term certain method to figure his required distributions. He figured his required minimum distribution for 2001 is $2,320 ($34,800 divided by 15). During 2001, 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, 2001. Because the distribution was received before April 1, 2001, he can count $2,400 of that distribution as his required distribution for his 70 1/2 year (2000). He can count the remainder ($1,200) as part of his required distribution for 2001. To figure his required distribution for 2001, Justin must reduce his IRA account balance by $2,400, rather than $3,600, to figure his required minimum distribution for 2001. Therefore, his reduced IRA account balance as of December 31, 2000, was $36,000. His required minimum distribution for 2001 is $2,400, rather than the $2,320 figured in Example 1. Because Justin has already received a distribution of $1,200 for 2001, only $1,200 more is needed to satisfy his minimum distribution requirement for 2001.

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 Further information, earlier.

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