24 Dec Do I have to eventually draw down my IRA account to zero?

Q. This past November I celebrated my 91st birthday. I take yearly IRA withdrawals. In what calendar year must my IRA account move to zero?
— Going strong

A. Happy 91st birthday!

Let’s start with a review of IRA rules.

There are requirements for when you have to take funds from an IRA. These are called Required Minimum Distributions, or RMDs.

Prior to the year 2020, you had to take RMDs when you turned 70, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

“The rule was you had to take the first RMD by April 1 in the year after the year you turned 70½,” he said. “If your birthday is after July 1, you turn 70 in one year and 70½ in the next year.”

The rule is you can wait until April 1 of the third year to take your first RMD. But if you do that, you have to take your age 70 and age 71 RMD in the same year, Kiely said.

“Due to an increase in life expectancy, the recently enacted SECURE Act adjusts the Required Minimum Distribution age from 70½ to 72. This provision applies only to individuals who attain age 70½ after Dec. 31, 2019,” Kiely said. “Thus, individuals who have reached age 70½ during 2019 or in a prior year do not benefit from this change.”

After account owners take their first RMD, they are required to take an annual distribution prior to the end of each subsequent year, Kiely said.

The distribution is calculated by dividing the IRA account balance at the last day of the prior year by a divisor from the IRS’ life expectancy tables.

For example, if the IRA owner is married and turned 75 during the year, the divisor is 22.9. If the account balance at the end of last year was $250,000, the RMD amount is $10,917 ($250,000 ÷ 22.9), Kiely said. This amounts to 4.36% of the account balance. If the account earned 5% during the year the account actually went up a little, he said.

“So there is no rule that says an IRA account must decrease in value year by year,” he said. “There is also no rule that says an IRA account balance must reach zero during the owner’s lifetime.”

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This story was originally published on Dec. 24, 2020.

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