Minimum Distribution Rules for Annuities

If you put money into a retirement program and deducted the contributions from your taxable income at the time, you'll have to pay taxes when you withdraw it. You also will have to start taking out your retirement savings when you're 70 1/2, whether you need the money or not. This applies to any tax-deferred retirement plan, including annuities offered by insurance companies.

Plans Affected

Minimum distribution rules affect traditional individual retirement accounts, tax-sheltered annuities, employer-sponsored 401k retirement plans and profit-sharing, stock bonus or target benefit plans. Individual Roth IRAs are exempt from the requirement because they are funded with money that's already been taxed. You'll pay tax on required withdrawals as regular income.

When to Start

The Internal Revenue Service says required minimum withdrawals, called RMDs, must start by April 1 of the year after the year you turn 70 1/2. Annual withdrawals have to be made by Dec. 31 of each year. If the initial withdrawal once you're 70 1/2 is deferred until the following April, there will be two withdrawals that year -- one in April and a second before Dec. 31.

Figuring RMD

The annuity's account manager normally will calculate the RMD for each account, based on the balance as of Dec. 31 and life expectancy of the account owner. One of three IRS tables are used for life expectancy: joint and last survivor table when an account owner's spouse beneficiary is more than 10 years younger; uniform lifetime table if the spouse is not the sole beneficiary or is less than 10 years younger; and single life expectancy for just the account owner.

Withdrawal Options

You do not have to take a RMD from each account if you have more than one. You have to calculate the RMD for each account, but can take the total amount from just one account if you choose. You must withdraw enough to match the total RMD of all accounts, however. If you don't withdraw the minimum, the amount not withdrawn will be taxed at 50 percent unless you can prove it was due to a reasonable error.

Retirement Rules

You have to withdraw minimum amounts in most cases whether you're retired or not. You can take more than the minimum if you choose but all withdrawals are taxed as ordinary income, and any excess over the minimum won't count against the next year's RMD. You can delay withdrawals from a 401 (k) if you continue to work for the company past 70 1/2 and don't own more than 5 percent of it.

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About the Author

Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.

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