Tuesday, July 20, 2010


The exam loves to ask surprising and tricky questions about IRAs and other retirement accounts. How would you answer something like this one?

Your Aunt Betty will celebrate her 70th birthday on July 11th, 2011. Therefore, you would remind her that she must take her first distribution from her Traditional IRA no later than

A. April 1, 2012

B. April 1, 2013

C. December 31, 2012

D. April 15th, 2012

EXPLANATION: investors benefit by letting their money grow tax-deferred as long as possible in the Traditional IRA. But, the IRS insists on being paid eventually. The longest we can wait to start taking money out is April 1st following our "70 1/2th birthday." This investor was not 70 1/2 in 2011 . . . not until 2012. So, she has until April 1st 2013 to take her first withdrawal. She'll have to make two withdrawals that year, but she can wait that long without being penalized for failing to take her required minimum distribution. BTW, you would only be 70 1/2 in 2011 if your birthday occurred by June 30th.


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