With the population aging and over 4000 people a day being forced to take IRA distributions (such distributions are mandatory by April 1 after reaching age 70 1/2), mistakes in taking IRA distributions can total in the billions. Yet, because people have had no prior experience, mistakes are rampant. Here are 4 common IRA distribution mistakes to avoid.
IRA Distribution Mistake #1
Every IRA owner can name a beneficiary and “stretch” the IRA for maximum tax deferral over the next generation.
Informed IRA owners believe that the following will occur with retirement assets they do not use during their lifetime. Say they leave $500,000 of retirement assets to heirs. They believe junior will make small withdrawals each year (required by IRS) and at 6%, the account with a 42-year-old beneficiary, will generate $2.5 million during junior’s lifetime (IRA distributions plus ending balance at life expectancy). This sounds great but it may never happen.
There are at least 2 ways that the stretch IRA can fail. The first way is because of a custodian with rules that do not permit lifetime IRA distribution payments. This is particularly common in...
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