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.

1. You did not take a deduction for the contribution.
2. 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You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn.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 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 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 You will not have to pay the 6% tax if any 2001 excess contribution was withdrawn by April 15, 2002 (plus extensions), and if any 2002 excess contribution is withdrawn by April 15, 2003 (plus extensions).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 70 1/2. 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 70 1/2 (your 701/2 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 701/2 year by April 1 of the next year. See Minimum Distributions, later. If an IRA owner dies after reaching age 70 1/2, 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 70 1/2, 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 70 1/2 year must be made by December 31 of that later year.

Example. You reach age 70 1/2 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 70 1/2 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 owner died on or after his or her required beginning date, and 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.

If the owner died before his or her required beginning date, and the designated beneficiary is an individual, required minimum distributions for years after the year of the owner's death generally are based on the beneficiary's single life expectancy.

If the owner's beneficiary is not an individual (for example, if the beneficiary is the owner's estate), see Beneficiary not an individual, later.

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 70 1/2, distributions to the spouse do not need to begin until the year in which the owner would have reached age 70 1/2.
• 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:

1. For all years before 2004, and
2. Made by the earlier of:
   1. December 31, 2003, or
   2. 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 70 1/2 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 70 1/2 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 70 1/2 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 70 1/2 if both of the following apply.

1. You were the owner's spouse when he or she died, and
2. The owner had not reached age 70 1/2 when he or she died.

Once that year occurs, or if the owner had reached the age of 70 1/2, 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 70 1/2. 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 70 1/2. 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 70 1/2.

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

Example. Justin became 70 1/2 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.

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.

1. All of the beneficiaries are individuals, and
2. 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.

1. The trust is a valid trust under state law, or would be but for the fact that there is no corpus.
2. The trust is irrevocable or will, by its terms, become irrevocable upon the death of the owner.
3. 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.
4. 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.
   1. A list of all of the beneficiaries of the trust (including contingent and remaindermen beneficiaries with a description of the conditions on their entitlement).
   2. 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.
   3. 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.
   4. 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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