Watch the Timing of When You Take Your First Distribution
You are required to start taking distributions at age 70 1/2. Specifically, you must take the distribution for the year in which you turn age 70 1/2 by April 1 of the year following that year. For example, If you turn 70 1/2 late in 2010, you would have until April of 2011 to take your first distribution. However, since you must take distributions for subsequent years by December 31 of that year you could end up having two distributions in 2011, one your initial distribution and one your distribution for 2011. If you turn 70 1/2 is near the end of the year be aware that a delay could end up doubling up your distributions possibly increasing your taxes in that initial distribution period.
Delay Distributions If You Are Employed
If you are still employed, you don't have to take a distribution from your current employer's plan, even if you are 70 1/2. However you are required to take distributions from IRAs and 401(k)s from past employers. So be conscious of the deadline if you have other accounts.
Always Designate a Beneficiary
if you die without naming a beneficiary, the IRAs custodial agreement will specify who receives the proceeds. It may also specify that the proceeds be paid out relatively quickly, creating a tax burden for your family. Designate a beneficiary by name, or leave the benefits in an IRA Trust so you can control to whom and how quickly funds are distributed. The failure to name designated beneficiaries could prevent your family from electing highly beneficial long-term stretch distributions. A designated beneficiary has the option of electing to receive inherited IRA benefits over their life expectancy. For very young beneficiaries their mandatory distribution amount could be a fraction of a percent, allowing the remainder to continue compounding on a tax-free basis over their lifetime. Without naming designated beneficiaries or allowing the IRA to go to your estate limits your beneficiaries ability to delay distributions beyond five years.
if you intend to leave charitable contributions you might want to consider using your IRA funds to make those contributions. Charitable organizations do not pay income taxes on a qualified IRA distributions, however your beneficiaries would. Therefore, it might be a good strategy to leave a portion of your taxable IRA funds to charity and leave other non-taxable assets to your family, saving them future income taxes.
Manage the Liquidity of your IRA to meet Mandatory Distributions
Once your IRA goes into distribution mode you will have an annual required minimum distribution. you should be aware that this distribution is required to be made to prevent a significant tax penalty. Therefore, it is smart to maintain enough distributable cash in your account so that you do not have to liquidate CDs early or sell other investments at the wrong time.