IRA Withdrawal Rules Life Expectancy – Paul Gaulkin CPA

money exchanging handsIn the event the owner of a traditional IRA dies before the required distribution date, there are two options for which a beneficiary can choose to effectively begin taking distributions. These two options are:

1. The life expectancy rule; or
2. The five year rule

Below we will go into detail of the differences of these two options and how they will effect a beneficiaries distributions from the decedents traditional IRA.

Life Expectancy Rule

The life expectancy rule basically states that a traditional IRA beneficiary must receive the interest in the IRA no later than the end of the calendar year immediately following the year of the IRA owner’s death. This however is not always the case; if the beneficiary is the spouse of the decedent then special rules will apply to the distribution of the interest in the traditional IRA.

Life Expectancy Rule Surviving Spouse

A surviving spouse beneficiary may choose to treat the deceased owner’s IRA as their own if they decide it is in their best interest to do so. However, if the surviving spouse does not choose to treat the IRA as their own, and chooses to take the distributions over life expectancy, such distributions must begin by the later of the end of the calendar year:

1. Immediately following the calendar year in which the IRA owner dies; or
2. In which the owner would have reached the age of 70 and a half

It is important to consider the options correctly because each person’s personal situation will dictate which strategy will work before them. Not one option is better than the other, each has their pros and cons depending on the beneficiaries current situation.

Five Year Rule

In an IRA distribution taken under the five year rule, a beneficiary’s interest must be completely distributed within five years following the IRA owner’s death.

Surviving Spouse Proper Election

In the event a surviving spouse wishes to treat the decedents IRA as their own, they must qualify under two provisions:

1. They must be the sole beneficiary; and
2. They must have an unlimited right to make withdrawals.

If the spouse is eligible for and makes the surviving spouse’s election, withdrawals made by the spouse before age 59 and a half would be subject to a premature distribution tax penalty.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


Comments are closed.