(NY Times) In 1993, owners of IRA and other tax deferred retirement plans paid about $1.4 billion in penalties. As is hopefully clear, and as I have stated many times previously, the payouts are some of the most convoluted in the tax guidelines. You can withdraw for death and disability, and beginning this month, you can waive the before 59 penalty of 10% if you use the money toward a portion of the medical expenses that exceed the 7.5% of your AGI or if you have been unemployed for more than 12 weeks and need the money to buy medical insurance.

There are also many unique methods to take out the money when 70. Assume you are 70 1/2, your actuarial lifetime is about 16 years. You can simply take out 1/16th each year. Or you can use a recalculated amount. After the first year, you life expectancy is not just 15 year- it's 15.3. You can recalculate each year and extend your payments out a longer period of time.

The first has major tax advantages. If you die during these distributions, your beneficiary can continue to take the distributions over the original beneficiaries lifetime. In the later case, the beneficiary must take out all the rest of the IRA in the year after the deceased has passed away.

Frankly, when you look at the figures below, it's not worth the extra hassle to use the recalculated figures since the extra funds are rather small.

Assume 70 1/2, initial balance of $58,000, earnings of 7% and NO joint beneficiaries.

To avoid all this, simply do not die.
Method Year Balance Lifetime Payout New Balance Earnings
Fixed Life 1 $58,000 16 years $3,625 $54,375 $3,806
2 58,181 15 3,879 54,302 3,801
3 58,103 14 4,150 53,953 3,777
Recalculated Life 1 58,000 16 3,625 54,375 3,806
2 58,181 15 3,803 54,378 3,806
3 58,184 14 3,985 54,199 3,794

MORE IRA DISTRIBUTIONS: (1997) As stated, the rules and implications for putting money into an IRA are fairly straight forward- though the implications for no step up in basis can be devastating for beneficiaries. However, the distributions from an IRA are complex and fraught with problems. The following is some commentary from USA Today and mentions a hybrid form of distribution that I was unfamiliar with.

Term certain means that your actuarial lifetime is chosen for the distribution and does not change even though you subsequently live a year+ longer.


Retains joint life expectancy for you if you spouse predeceases

Provides greater flexibility on your death

Locks in a predetermined number of years. Disadvantages

Required minimum distribution will be greater after the first year than under recalculation

Money only last to your predetermined life expectancy

Recalculation means that each year you live longer, the remaining years left are recalculated to reflect a longer life expectancy.


Distributions after the first year are LESS than under the term certain

Principal is able to last longer and grow tax deferred

Money will last rest of life Disadvantages

Required minimum distribution will be accelerated after the spouse dies.

Restrictive payouts after you die.

Hybrid calculation allows the owner to select the recalculation method while the beneficiary selects the term certain.


If spouse beneficiary dies first, joint life expectancy can still be used.

Distributions after the first year are LESS than under the term certain Disadvantages

Complex to administer

In the first few years, payments are greater than under the term certain

ANNUITY PAYOUTS: (Mutual Fund 1998)  As stated frequently, putting money into an IRA is pretty straight forward- pulling it out is like brain surgery. I suggest you call the IRS at 800 829-3676 and ask for publication 590. Anyway I'll try and describe a couple of the methods you should acknowledge.

Life Expectancy Methods: If you are younger than 59 ½, you can still take money out of an IRA without the 10% penalty if the distributions are over your lifetime (or including your beneficiary) and must continue for 5 years or until 59 ½, whichever is longer. At such time, you can convert to the normal distributions. The distribution s can come from just one IRA- you don't have to take pro rated amounts from each one. As an example, if you were 50 years of age the IRS interprets 33.1 more years to live. Simply divide the IRA balance(s) by that number and take it out each year. Don't take more or less- otherwise the IRS might apply the 10% penalty. If the balance was $100,000, that would provide $3,021 per year

Amortization Method: Essentially the same thing but let's you adjust the number due to the fact that your IRA is earning a return each year. You have to pick a "reasonable rate of return" for the calculation. You are probably O.K. to pick something in excess of the 30 year Treasury and the IRS has indicated that using 120% of the Long Term Applicable Federal Rate is acceptable. Just don't overdo it. Anyway, if one had assume an 8% return on the above example, the penalty free amount would almost triple to $8,679. And since almost anyone doing this needs or wants the money, it is clearly the way to proceed.

Annuity Method: The IRS allows you to use a standard mortality table. In such case with a 50 year old, the annuity factor for a $1 per year annuity is 11.109. You could divide your $100,000 by 11.109 and take $9,002.

Cost of Living: Here is one I never heard of. In a 1995 private letter ruling 9536031, you "can" increase your payments to adjust for the cost of living. Therefore with a 2.5% CPI, you could increase your payments the following year by 2.5%. Not much perhaps, but if you took out the distributions at an earlier age of say 45, the compounding effect can be rather substantial

IRA WITHDRAWALS FOR CERTAIN MEDICAL EXPENSES:  (1998) These are now penalty-free. The usual 10% penalty tax on early withdrawals from an IRA does not apply if the funds are used to pay for medical expenses that are in excess of 7.5% of adjusted gross income. Also, the 10% tax does not apply to distributions that are used to pay for medical insurance (without regard to the 7.5% floor) if the individual has received unemployment compensation under federal or state law for at least 12 weeks.

IRA's: (1999) I will repeat- putting money into an IRA is relatively simple (though with some caveats due to the new ROTH IRA's) but taking it out is root canal. If you have more than one beneficiary I suggest you buy expert help. DON'T TRY TO DO THIS AT HOME! Anyway an Investment Advisor article noted that if you wish to give some funds to an IRA while still retaining some for your self and another beneficiary requires some unique planning. Charities do not have a measurable lifetime and therefore an IRA may be depleted faster than one would like since recalculation with another beneficiary would not be allowed. The example stated that if you had 30% of a $1,000,000 IRA that was to go to a charity and 70% to be retained by you (age 70) and your wife (age 69), putting the charity and your wife as a beneficiary would require a minimum distribution of $62,500. However, split the actual IRA so that $300,000 goes into an account separately for the charity and $700,000 is retained by the husband and wife. The $700,000 can be calculated on the joint life expectancy of the husband AND wife and and require only a $51,925 distribution and the "extra" amount of $10,575 could be left to compound. An additional opportunity is allowed by IRS Notice 88-38 wherein both distributions may come from the same IRA. If one account is growing that much faster than the other, perhaps distributions comes from only one account and the other can be left to grow for the other beneficiaries.

Proposed 2001 Regulations Simplify IRA Distributions  You need to sign up at

The Service has revised and reissued proposed regulations (REG-130477-00; REG-130481-00) which simplify the calculation of minimum required distributions ("MRD") from IRAs during the individual's lifetime and the determination of a designated beneficiary for distributions after death by: (1) providing a uniform table that all employees/IRA owners can use to determine the required minimum distribution during their lifetime. (This makes it easier to calculate the required minimum distribution because the employees/IRA owners would no longer need to (a) determine their beneficiary by their required beginning date, (b) decide whether or not to recalculate their life expectancy each year in determining required minimum distributions, and (c) satisfy a separate incidental death benefit rule); (2) permitting the required minimum distribution during the employee/IRA owner's lifetime to be calculated without regard to the beneficiary's age (except when required distributions can be reduced by taking into account the age of a beneficiary who is a spouse more than 10 years younger than the employee/IRA owner); (3) permitting the beneficiary to be determined as late as the end of the year following the year of the employee/IRA owner's death. (This allows (a) the employee/IRA owner to change designated beneficiaries after the required beginning date without increasing the required minimum distribution and (b) the beneficiary to be changed after the employee/IRA owner's death, such as by one or more beneficiaries disclaiming or being cashed out); and (4) permitting the calculation of post-death minimum distributions to take into account an employee/IRA owner's remaining life expectancy at the time of death, thus allowing distributions in all cases to be spread over a number of years after death.

New proposed distribution rules for singles and married with spouses not more than 10 years younger 2001

Age/years to divide by. For example, you are age 77 and your IRA assets totaled $500,000 at the end of 2000. The 2001 distribution is $500,000 divided by 20.1.

70 26.2 81 16.8 92 9.4 104 4.4
71 25.3 82 16.0 93 8.8 105 4.1
72 24.4 83 15.3 94 8.3
73 23.5 84 14.5 95 7.8
74 22.7 85 13.8 96 7.3
75 21.8 86 13.1 97 6.9
76 20.9 87 12.4 98 6.5
77 20.1 88 11.8 99 6.1
78 19.2 89 11.1 101 5.7
79 18.4 90 10.5 102 5.3
80 17.6 91 9.9 103 5.0

The new regulations also provide that a designated beneficiary can be determined posthumously, on Dec. 31 of the year after an account holder's death. Then distributions can be made based on the beneficiary's life expectancy. They also allow a primary beneficiary to do what is legally known as "disclaiming," or turning down an inheritance, so that it goes to the contingent beneficiary

Click Here!