Q: I just turned 70 and understand I have to start taking minimum distributions from all of my IRA accounts in another six months. My friend told me that I could take my distribution out of just one IRA. Since my Roth IRA 
investments are performing poorly, I thought I would take my distributions from that account. Is that the best account for my first withdrawal?
A: Well, if you were playing in the big leagues, batting .500 would be pretty good. But with the IRS, you either bat 1.000 or strike out. Yes, your friend was correct to say you can aggregate all of your traditional IRA balances for minimum distribution purposes, and then take your distribution for just one IRA. But, Roth IRA accounts can’t be added to the mix.
With traditional tax-deferred saving vehicles, the IRS has taxed neither the income you contributed to the plan, nor the earnings on that plan. Uncle Sam allows that tax-free ride, but for just so long. So, at age 70 1/2, you need to withdraw and pay taxes on that income you’ve sheltered all those years. Your first distribution can occur in the year you actually turn 70 1/2, or you can delay it until April 1 of next year. Make sure you hit those distribution deadlines, as there is a hefty 50% excise tax if you don’t take a required distribution.
A Roth IRA, on the other hand, is comprised of contributions that have already been taxed. As the incentive to pay the tax up front, Uncle Sam allows the earnings to grow without being taxed, AND he doesn’t require distributions at any specific age.
To calculate your required minimum distribution, add up all the balances on your traditional IRAs, apply a factor from the IRS table and take a withdrawal from the IRA or IRAs of your choice.
D.Drummond Osborn, CFP, is a founding partner of Osborn Wealth Management, a LaPorte-based Registered Investment Advisor, where he focuses on retirement planning and investment management. Visit him on the web at www.osbornwealthmanagement.com or e-mail him your questions or comments at drummond@osbornwealthmanagement.com.
