Individual Retirement Accounts, or IRAs, are tax advantaged savings plans in which contributions are placed in custodial accounts at financial institutions, mutual funds, investment brokerage firms, or insurance companies. These are only available to those people who meet certain eligibility requirements. IRA contributions can be deducted from annual income for state and federal tax calculation purposes. IRAs accumulate earnings tax free until the money is withdrawn at retirement. If a person needs funds that are in an IRA, he can make Individual Retirement Account withdrawals that are governed by rules. Withdrawals before age 59 should have an Internal Revenue Service 10% excise tax on distributions unless the withdrawal falls under the "exception" rules. These exception rules have something to do with medical expenses, health insurance premiums, home buyer expenses, education expenses, education IRAs, Roth IRAs, death and disability, and equal payments based on life expectancy. If the owner of the "ordinary" IRA ages 59 to 70, he can choose to either withdraw the entire balance or any amount as needed without paying the 10% excise tax. But, the amount to be withdrawn from the IRA should be added to the owner?s income for the year to be taxed accordingly. When the IRA owner turns 70, federal law requires that minimum distributions from an "ordinary" IRA must begin. Payments can be based over the life expectancy of the designated beneficiary, if the IRA owner has one, and the IRA owner himself. If there is no beneficiary, then the calculation of minimum annual withdrawals will use a single life expectancy. Moreover, if the beneficiary is the spouse, the joint life expectancy is used to allow an IRA to grow for a longer time. And if the beneficiary is someone other than the spouse and is less than 10 years younger than the IRA owner, a recalculation of his/her life expectancy can be done by the owner. An IRA calculator can be used when calculating this. Individual Retirement Account withdrawals are complicated. If an IRA owner wants to withdraw funds, he can acquire the assistance of a specialist to better understand the rules. |
