December 15, 2004  Email this  Print this
 License or reprint this articleTAX ANSWERS
Time for an IRA Distribution?
by Kevin McCormally  Many taxpayers older than age 70 face a very dangerous deadline at the end of December. If you -- or your parents or grandparents -- are required to take money out of a traditional IRA, December 31 is the deadline for making the required withdrawal for 2004. Miss that deadline and the IRS can claim 50% of the money you failed to take. And, get this, 2004 is the first year that IRA sponsors have been required to give the IRS a heads up on who's supposed to be withdrawing money from their accounts.
Who's in jeopardy: The law requires you to begin taking money out of a traditional IRA starting in the year you turn age 70½. If your 70th birthday was between January 1 and June 30 of this year, you turned 70½ in 2004. But a special rule lets you put off your first mandatory withdrawal until April 1 of 2005.
The penalty we're talking about threatens folks who turned 70½ in 2003 or earlier years. They are required to withdraw a certain amount -- based on the amount in the account at the end of the previous year and on their life expectancy. The required minimum must be paid out by December 31.
Failing to do so unleashes that stiff 50% penalty.
If you are not certain that you have taken your required distribution for 2004, call your IRA sponsor.
If you must make a withdrawal, you can arrange to have income taxes withheld from the distribution to cover the tax bill you'll owe.
One final point: Mandatory withdrawal rules do not apply to Roth IRAs (unless you inherited the account).
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