IRS Releases Publication 590-B (2017), Distributions from Individual Retirement Arrangements (IRAs)

Reminders

Future developments. For the latest information about developments related to Pub. 590-B, such as legislation enacted after it was published, go to http://www.irs.gov/pub590b.

Publication 590 split. Before tax year 2014, Pub. 590 was a single, combined publication that covered both contributions to and distributions from IRAs. The 2013 version of Pub. 590 was the final version before the publication was split into Pub. 590-A and Pub. 590-B as follows.

Simplified employee pension (SEP). SEP IRAs are not covered in this publication. They are covered in Pub. 560, Retirement Plans for Small Business.

Deemed IRAs. A qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. An employee's account can be treated as a traditional IRA or a Roth IRA.

For this purpose, a "qualified employer plan" includes:

IRA interest. Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. Tax on your traditional IRA is generally deferred until you take a distribution. Do not report this interest on your return as tax-exempt interest. For more information on tax-exempt interest, see the instructions for your tax return.

Net Investment Income Tax. For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), or 457(b) plans, and IRAs). However, these distributions are taken into account when determining the modified adjusted gross income threshold. Distributions from a nonqualified retirement plan are included in net investment income. See Form 8960 and its instructions for more information.

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Introduction

This publication discusses distributions from individual retirement arrangements (IRAs). An IRA is a personal savings plan that gives you tax advantages for setting aside money for retirement. For information about contributions to an IRA, see Pub. 590-A.

What are some tax advantages of an IRA? Two tax advantages of an IRA are that:

How to use this publication. The rules that you must follow depend on which type of IRA you have. Use Table I-1 to help you determine which parts of this publication to read. Also use Table I-1 if you were referred to this publication from instructions to a form.

Table I-1. Using This Publication

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 This table shows the differences between traditional and Roth IRAs.

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Useful Items

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Publications

1. Traditional IRAs

Introduction

This chapter discusses distributions from an IRA. In this publication the original IRA (sometimes called an ordinary or regular IRA) is referred to as a "traditional IRA." A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA.

What if You Inherit an IRA?

If you inherit a traditional IRA, you are called a beneficiary. A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive.

Inherited from spouse. If you inherit a traditional IRA from your spouse, you generally have the following three choices. You can:

Inherited from someone other than spouse. If you inherit a traditional IRA from anyone other than your deceased spouse, you cannot treat the inherited IRA as your own. This means that you cannot make any contributions to the IRA. It also means you cannot roll over any amounts into or out of the inherited IRA. However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary.

Like the original owner, you generally will not owe tax on the assets in the IRA until you receive distributions from it. You must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries.

IRA with basis. If you inherit a traditional IRA from a person who had a basis in the IRA because of nondeductible contributions, that basis remains with the IRA. Unless you are the decedent's spouse and choose to treat the IRA as your own, you cannot combine this basis with any basis you have in your own traditional IRA(s) or any basis in traditional IRA(s) you inherited from other decedents. If you take distributions from both an inherited IRA and your IRA, and each has basis, you must complete separate Forms 8606 to determine the taxable and nontaxable portions of those distributions.

Federal estate tax deduction. A beneficiary may be able to claim a deduction for estate tax resulting from certain distributions from a traditional IRA. The beneficiary can deduct the estate tax paid on any part of a distribution that is income in respect of a decedent. He or she can take the deduction for the tax year the income is reported. For information on claiming this deduction, see Estate Tax Deduction under Other Tax Information in Pub. 559.

Any taxable part of a distribution that is not income in respect of a decedent is a payment the beneficiary must include in income. However, the beneficiary cannot take any estate tax deduction for this part.

A surviving spouse can roll over the distribution to another traditional IRA and avoid including it in income for the year received.

More information. For more information about rollovers, required distributions, and inherited IRAs, see:

You can withdraw or use your traditional IRA assets at any time. However, a 10% additional tax generally applies if you withdraw or use IRA assets before you reach age 59 1/2. This is explained under Age 59 1/2 Rule under Early Distributions, later.

You generally can make a tax-free withdrawal of contributions if you do it before the due date for filing your tax return for the year in which you made them. This means that even if you are under age 59 1/2, the 10% additional tax may not apply. These distributions are explained in Pub. 590-A.

When Must You Withdraw Assets? (Required Minimum Distributions)

You cannot keep funds in a traditional IRA (including SEP and SIMPLE IRAs) indefinitely. Eventually they must be distributed. If there are no distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required. See Excess Accumulations (Insufficient Distributions), later, under What Acts Result in Penalties or Additional Taxes? The requirements for distributing IRA funds differ, depending on whether you are the IRA owner or the beneficiary of a decedent's IRA.

Required minimum distribution. The amount that must be distributed each year is referred to as the required minimum distribution.

Distributions not eligible for rollover. Amounts that must be distributed (required minimum distributions) during a particular year are not eligible for rollover treatment.

Note. A qualified charitable distribution will count towards your required minimum distribution. See Qualified charitable distributions under Are Distributions Taxable?, later.

IRA Owners

If you are the owner of a traditional IRA, you must generally start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70 1/2. April 1 of the year following the year in which you reach age 70 1/2 is referred to as the required beginning date.

Distributions by the required beginning date. You must receive at least a minimum amount for each year starting with the year you reach age 70 1/2 (your 70 1/2 year). If you do not (or did not) receive that minimum amount in your 70 1/2 year, then you must receive distributions for your 70 1/2 year by April 1 of the next year.

If an IRA owner dies after reaching age 70 1/2, but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date.

CAUTION: Even if you begin receiving distributions before you reach age 70 1/2, you must begin calculating and receiving required minimum distributions by your required beginning date.

More than minimum received. If, in any year, you receive more than the required minimum distribution for that year, you will not receive credit for the additional amount when determining the minimum required distributions for future years. This does not mean that you do not reduce your IRA account balance. It means that if you receive more than your required minimum distribution in one year, you cannot treat the excess (the amount that is more than the required minimum distribution) as part of your required minimum distribution for any later year. However, any amount distributed in your 70 1/2 year will be credited toward the amount that must be distributed by April 1 of the following year.

Distributions after the required beginning date. The required minimum distribution for any year after the year you turn 70 1/2 must be made by December 31 of that later year.

Example. You reach age 70 1/2 on August 20, 2016. For 2016, you must receive the required minimum distribution from your IRA by April 1, 2017. You must receive the required minimum distribution for 2017 by December 31, 2017.

CAUTION: If you do not receive your required minimum distribution for 2016 until 2017, both your 2016 and your 2017 distributions will be included in income on your 2017 return.

Distributions from individual retirement account. If you are the owner of a traditional IRA that is an individual retirement account, you or your trustee must figure the required minimum distribution for each year. See Figuring the Owner's Required Minimum Distribution below.

Distributions from individual retirement annuities. If your traditional IRA is an individual retirement annuity, special rules apply to figuring the required minimum distribution. For more information on rules for annuities, see Regulations section 1.401(a)(9)-6. These regulations can be read in many libraries, IRS offices, and online at IRS.gov.

Change in marital status. For purposes of figuring your required minimum distribution, your marital status is determined as of January 1 of each year. If your spouse is a beneficiary of your IRA on January 1, he or she remains a beneficiary for the entire year even if you get divorced or your spouse dies during the year. For purposes of determining your distribution period, a change in beneficiary is effective in the year following the year of death or divorce.

Change of beneficiary. If your spouse is the sole beneficiary of your IRA, and he or she dies before you, your spouse will not fail to be your sole beneficiary for the year that he or she died solely because someone other than your spouse is named a beneficiary for the rest of that year. However, if you get divorced during the year and change the beneficiary designation on the IRA during that same year, your former spouse will not be treated as the sole beneficiary for that year.

Figuring the Owner's Required Minimum Distribution

Figure your required minimum distribution for each year by dividing the IRA account balance (defined next) as of the close of business on December 31 of the preceding year by the applicable distribution period or life expectancy. Tables showing distribution periods and life expectancies are found in Appendix B and are discussed later.

IRA account balance. The IRA account balance is the amount in the IRA at the end of the year preceding the year for which the required minimum distribution is being figured.

Contributions. Contributions increase the account balance in the year they are made. If a contribution for last year is not made until after December 31 of last year, it increases the account balance for this year, but not for last year. Disregard contributions made after December 31 of last year in determining your required minimum distribution for this year.

Outstanding rollovers and recharacterizations. The IRA account balance is adjusted by outstanding rollovers and recharacterizations of Roth IRA conversions that are not in any account at the end of the preceding year.

For a rollover from a qualified plan or another IRA that was not in any account at the end of the preceding year, increase the account balance of the receiving IRA by the rollover amount valued as of the date of receipt.

If a conversion contribution is contributed to a Roth IRA and that amount (plus net income allocable to it) is transferred to another IRA in a subsequent year as a recharacterized contribution, increase the account balance of the receiving IRA by the recharacterized contribution (plus allocable net income) for the year in which the conversion occurred.

Distributions. Distributions reduce the account balance in the year they are made. A distribution for last year made after December 31 of last year reduces the account balance for this year, but not for last year. Disregard distributions made after December 31 of last year in determining your required minimum distribution for this year.

Example 1. Laura was born on October 1, 1945. She reaches age 70 1/2 in 2016. Her required beginning date is April 1, 2017. As of December 31, 2015, her IRA account balance was $26,500. No rollover or recharacterization amounts were outstanding. Using Table III in Appendix B, the applicable distribution period for someone her age (71) is 26.5 years. Her required minimum distribution for 2016 is $1,000 ($26,500 ÷ 26.5). That amount is distributed to her on April 1, 2017.

Example 2. Joe, born October 1, 1945, reached 70 1/2 in 2016. His wife (his beneficiary) turned 56 in September 2016. He must begin receiving distributions by April 1, 2017. Joe's IRA account balance as of December 31, 2015, is $30,100. Because Joe's wife is more than 10 years younger than Joe and is the sole beneficiary of his IRA, Joe uses Table II in Appendix B. Based on their ages at year end (December 31, 2016), the joint life expectancy for Joe (age 71) and his wife (age 56) is 30.1 years. The required minimum distribution for 2016, Joe's first distribution year, is $1,000 ($30,100 ÷ 30.1). This amount is distributed to Joe on April 1, 2017.

Distribution period. This is the maximum number of years over which you are allowed to take distributions from the IRA. The period to use for 2016 is listed next to your age as of your birthday in 2016 in Table III in Appendix B.

Life expectancy. If you must use Table I, your life expectancy for 2017 is listed in the table next to your age as of your birthday in 2017. If you use Table II, your life expectancy is listed where the row or column containing your age as of your birthday in 2017 intersects with the row or column containing your spouse's age as of his or her birthday in 2017. Both Table I and Table II are in Appendix B.

Distributions during your lifetime. Required minimum distributions during your lifetime are based on a distribution period that generally is determined using Table III (Uniform Lifetime) in Appendix B. However, if the sole beneficiary of your IRA is your spouse who is more than 10 years younger than you, see Sole beneficiary spouse who is more than 10 years younger below.

To figure the required minimum distribution for 2017, divide your account balance at the end of 2016 by the distribution period from the table. This is the distribution period listed next to your age (as of your birthday in 2017) in Table III in Appendix B, unless the sole beneficiary of your IRA is your spouse who is more than 10 years younger than you.

Example. You own a traditional IRA. Your account balance at the end of 2016 was $100,000. You are married and your spouse, who is the sole beneficiary of your IRA, is 6 years younger than you. You turn 75 years old in 2017. You use Table III. Your distribution period is 22.9. Your required minimum distribution for 2017 would be $4,367 ($100,000 ÷ 22.9).

Sole beneficiary spouse who is more than 10 years younger. If the sole beneficiary of your IRA is your spouse and your spouse is more than 10 years younger than you, use the life expectancy from Table II (Joint Life and Last Survivor Expectancy) in Appendix B.

The life expectancy to use is the joint life and last survivor expectancy listed where the row or column containing your age as of your birthday in 2017 intersects with the row or column containing your spouse's age as of his or her birthday in 2017.

You figure your required minimum distribution for 2017 by dividing your account balance at the end of 2016 by the life expectancy from Table II (Joint Life and Last Survivor Expectancy) in Appendix B.

Example. You own a traditional IRA. Your account balance at the end of 2016 was $100,000. You are married and your spouse, who is the sole beneficiary of your IRA, is 11 years younger than you. You turn 75 in 2017 and your spouse turns 64. You use Table II. Your joint life and last survivor expectancy is 23.6. Your required minimum distribution for 2017 would be $4,237 ($100,000 ÷ 23.6).

Distributions in the year of the owner's death. The required minimum distribution for the year of the owner's death depends on whether the owner died before the required beginning date, defined earlier.

If the owner died before the required beginning date, there is no required minimum distribution in the year of the owner's death. For years after the year of the owner's death, see Owner Died Before Required Beginning Date, later, under IRA Beneficiaries.

If the owner died on or after the required beginning date, the IRA beneficiaries are responsible for figuring and distributing the owner's required minimum distribution in the year of death. The owner's required minimum distribution for the year of death generally is based on Table III (Uniform Lifetime) in Appendix B. However, if the sole beneficiary of the IRA is the owner's spouse who is more than 10 years younger than the owner, use the life expectancy from Table II (Joint Life and Last Survivor Expectancy).

Note. You figure the required minimum distribution for the year in which an IRA owner dies as if the owner lived for the entire year.

IRA Beneficiaries

The rules for determining required minimum distributions for beneficiaries depend on the following.

CAUTION: If distributions to the beneficiary from an inherited traditional IRA are less than the required minimum distribution for the year, discussed in this chapter under When Must You Withdraw Assets? (Required Minimum Distributions), you may have to pay a 50% excise tax for that year on the amount not distributed as required. For details, see Excess Accumulations (Insufficient Distributions) under What Acts Result in Penalties or Additional Taxes? later in this chapter.

Surviving spouse. If you are the surviving spouse who is the sole beneficiary of your deceased spouse's IRA, you may elect to be treated as the owner and not as the beneficiary. If you elect to be treated as the owner, you determine the required minimum distribution (if any) as if you were the owner beginning with the year you elect or are deemed to be the owner. For details, see Inherited from spouse under What if You Inherit an IRA?, earlier in this chapter.

Note. If you become the owner in the year your deceased spouse died, do not determine the required minimum distribution for that year using your life; rather, you must take the deceased owner's required minimum distribution for that year (to the extent it was not already distributed to the owner before his or her death).

CAUTION: You can never make a rollover contribution of a required minimum distribution. Any rollover contribution is subject to the 6% tax on excess contributions. See chapter 1 of Pub. 590-A for more information on the tax on excess contributions.

TIP: For any year after the owner's death, where a surviving spouse is the sole designated beneficiary of the account and he or she fails to take a required minimum distribution (if one is required) by December 31 under the rules discussed below for beneficiaries, he or she will be deemed the owner of the IRA. For details, see Inherited from spouse under What if You Inherit an IRA?, earlier in this chapter.

Date the designated beneficiary is determined. Generally, the designated beneficiary is determined on September 30 of the calendar year following the calendar year of the IRA owner's death. In order to be a designated beneficiary, an individual must be a beneficiary as of the date of death. Any person who was a beneficiary on the date of the owner's death, but is not a beneficiary on September 30 of the calendar year following the calendar year of the owner's death (because, for example, he or she disclaimed entitlement or received his or her entire benefit), will not be taken into account in determining the designated beneficiary. An individual may be designated as a beneficiary either by the terms of the plan or, if the plan permits, by affirmative election by the employee specifying the beneficiary.

Note. If a person who is a beneficiary as of the owner's date of death dies before September 30 of the year following the year of the owner's death without disclaiming entitlement to benefits, that individual, rather than his or her successor beneficiary, continues to be treated as a beneficiary for determining the distribution period.

For the exception to this rule, see Death of surviving spouse prior to date distributions begin, later.

Death of a beneficiary. In general, the beneficiaries of a deceased beneficiary must continue to take the required minimum distributions after the deceased beneficiary's death, based on the distribution schedule established by that beneficiary under the rules in the following paragraphs. The beneficiaries of a deceased beneficiary do not calculate required minimum distributions using their own life expectancies.

For the exception to this rule, see Death of surviving spouse prior to date distributions begin, later.

More than one beneficiary. If an IRA has more than one beneficiary or a trust is named as beneficiary, see Miscellaneous Rules for Required Minimum Distributions, later.

Owner Died On or After Required Beginning Date

If the owner died on or after his or her required beginning date (defined earlier), and you are the designated beneficiary, you must base required minimum distributions for years after the year of the owner's death on the longer of:

Owner Died Before Required Beginning Date

If the owner died before his or her required beginning date (defined earlier), and you are the designated beneficiary, you generally must base required minimum distributions for years after the year of the owner's death using your single life expectancy shown on Table I in Appendix B as determined under Beneficiary an individual, later.

See 5-year rule, later, for situations where an individual designated beneficiary may be required to take the entire account by the end of the fifth year following the year of the owner's death.

If the owner's beneficiary is not an individual (for example, if the beneficiary is the owner's estate), the 5-year rule (discussed later) applies.

Special rules for surviving spouse. If the owner died before his or her required beginning date and the surviving spouse is the sole designated beneficiary, the following rules apply.

Year of first required distribution. If the owner died before the year in which he or she reached age 70 1/2, distributions to the spouse do not need to begin until the year in which the owner would have reached age 70 1/2.

Death of surviving spouse prior to date distributions begin. If the surviving spouse dies before December 31 of the year he or she must begin receiving required minimum distributions, the surviving spouse will be treated as if he or she were the owner of the IRA.

This rule does not apply to the surviving spouse of a surviving spouse.

Example 1. Your spouse died in 2014, at age 65 1/2. You are the sole designated beneficiary of your spouse's traditional IRA. You do not need to take any required minimum distribution until December 31 of 2019, the year your spouse would have reached age 70 1/2. If you die prior to that date, you will be treated as the owner of the IRA for purposes of determining the required distributions to your beneficiaries. For example, if you die in 2016, your beneficiaries will not have any required minimum distribution for 2016 (because you, treated as the owner, died prior to your required beginning date). They must start taking distributions under the general rules for an owner who died prior to the required beginning date.

Example 2. Same as Example 1, except your sole beneficiary upon your death in 2016 is your surviving spouse. Your surviving spouse cannot wait until the year you would have turned 70 1/2 to take distributions using his or her life expectancy. Also, if your surviving spouse dies prior to the date he or she is required to take a distribution, he or she is not treated as the owner of the account. Just like any other individual beneficiary of an owner who dies before the required beginning date, your surviving spouse must start taking distributions in 2017 based on his or her life expectancy (or elect to fully distribute the account under the 5-year rule by the end of 2021).

TIP: The second surviving spouse from Example 2 above can still elect to treat the IRA as his or her own IRA or rollover any distributions that are not required minimum distributions into his or her own IRA. See Inherited from spouse under What if You Inherit an IRA?, earlier in this chapter.

5-year rule. The 5-year rule requires the IRA beneficiaries to withdraw 100% of the IRA by December 31 of the year containing the fifth anniversary of the owner's death. For example, if the owner died in 2016, the beneficiary would have to fully distribute the plan by December 31, 2021. The beneficiary is allowed, but not required, to take distributions prior to that date. The 5-year rule never applies if the owner died on or after his or her required beginning date.

Individual designated beneficiaries. The terms of most IRA plans require individual designated beneficiaries to take required minimum distributions using the life expectancy rules (explained earlier) unless such beneficiaries elect to take distributions using the 5-year rule. The deadline for making this election is December 31 of the year the beneficiary must take the first required distribution using his or her life expectancy (or December 31 of the year containing the fifth anniversary of the owner's death, if earlier).

Beneficiary not an individual. The 5-year rule applies in all cases where there is no individual designated beneficiary by September 30 of the year following the year of the owner's death or where any beneficiary is not an individual (for example, the owner named his or her estate as the beneficiary).

TIP: Review the IRA plan documents or consult with the IRA custodian or trustee for specifics on the 5-year rule provisions of any particular plan.

CAUTION: If the 5-year rule applies, the amount remaining in the IRA, if any, after December 31 of the year containing the fifth anniversary of the owner's death is subject to the 50% excise tax detailed in Excess Accumulations (Insufficient Distributions), later.

Figuring the Beneficiary's Required Minimum Distribution

How you figure the required minimum distribution depends on whether the beneficiary is an individual or some other entity, such as a trust or estate.

Beneficiary an individual. If the beneficiary is an individual, to figure the required minimum distribution for 2017, divide the account balance at the end of 2016 by the appropriate life expectancy from Table I (Single Life Expectancy) in Appendix B. Determine the appropriate life expectancy as follows.

Spouse as sole designated beneficiary. Use the life expectancy listed in the table next to the spouse's age (as of the spouse's birthday in 2017). Use this life expectancy even if the spouse died in 2017.

If the spouse died in 2016 or a prior year, use the life expectancy listed in the table next to the spouse's age as of his or her birthday in the year he or she died. Reduce the life expectancy by one for each year since the year following the spouse's death.

CAUTION: You cannot make a rollover contribution of your required minimum distributions in years after the owner's death. Such contribution is subject to the 6% tax on excess contributions. See chapter 1 of Pub. 590-A for more information on the tax on excess contributions.

Other designated beneficiary. Use the life expectancy listed in the table next to the beneficiary's age as of his or her birthday in the year following the year of the owner's death. Reduce the life expectancy by one for each year since the year following the owner's death. As discussed in Death of a beneficiary, earlier, if the designated beneficiary dies before his or her portion of the account is fully distributed, continue to use the designated beneficiary's remaining life expectancy to determine the distribution period; do not use the life expectancy of any subsequent beneficiary.

Example. Your father died in 2016. You are the designated beneficiary of your father's traditional IRA. You are 53 years old in 2017, which is the year following your father's death. You use Table I and see that your life expectancy in 2017 is 31.4. If the IRA was worth $100,000 at the end of 2016, your required minimum distribution for 2017 would be $3,185 ($100,000 ÷ 31.4). If the value of the IRA at the end of 2017 was again $100,000, your required minimum distribution for 2018 would be $3,289 ($100,000 ÷ 30.4 (31.4 reduced by 1, which is the number of years following the year after your father's death in 2016)).

Beneficiary not an individual. If the beneficiary is not an individual, determine the required minimum distribution for 2017 as follows.

Death on or after required beginning date. Divide the account balance at the end of 2016 by the appropriate life expectancy from Table I (Single Life Expectancy) in Appendix B. Use the life expectancy listed next to the owner's age as of his or her birthday in the year of death. Reduce the life expectancy by one for each year after the year of death. (Note. Also figure the required minimum distribution for an individual beneficiary using this method if it results in a longer life expectancy where the owner died on or after the required beginning date.)

Death before required beginning date. The 5-year rule (discussed earlier) applies. The entire account must be distributed by the end of the fifth year following the year of the owner's death. No distribution is required for any year before that fifth year.

Note. The required beginning date was defined earlier under Distributions by the required beginning date.

Example. The owner died in 2016 at the age of 80. The owner's traditional IRA went to his estate. The account balance at the end of 2016 was $100,000. In 2017, the required minimum distribution would be $10,870 ($100,000 ÷ 9.2). (The owner's life expectancy in the year of death, 10.2, reduced by one.) If the owner had died in 2016 at the age of 70, the entire account would have to be distributed by the end of 2021. See Death before required beginning date under Beneficiary not an individual above.

Which Table Do You Use To Determine Your Required Minimum Distribution?

There are three different life expectancy tables. The tables are found in Appendix B of this publication. You use only one of them to determine your required minimum distribution for each traditional IRA. Determine which one to use as follows.

Reminder. In using the tables for lifetime distributions, marital status is determined as of January 1 each year. Divorce or death after January 1 is generally disregarded until the next year. However, if you divorce and change the beneficiary designation in the same year, your former spouse cannot be considered your sole beneficiary for that year.

Table I (Single Life Expectancy). Use Table I for years after the year of the owner's death if either of the following applies.

Table II (Joint Life and Last Survivor Expectancy). Use Table II if you are the IRA owner and your spouse is both your sole designated beneficiary and more than 10 years younger than you.

Note. Use this table in the year of the owner's death if the owner died after the required beginning date and this is the table that would have been used had he or she not died.

Table III (Uniform Lifetime). Use Table III if you are the IRA owner and your spouse is not both the sole designated beneficiary of your IRA and more than 10 years younger than you.

Note. Use this table in the year of the owner's death if the owner died after the required beginning date and this is the table that would have been used had he or she not died.

No table. Do not use any of the tables if the 5-year rule (discussed earlier) applies.

What Age(s) Do You Use With the Table(s)?

The age or ages to use with each table are explained below.

Table I (Single Life Expectancy). If you are a designated beneficiary figuring your first distribution, use your age as of your birthday in the year distributions must begin. This is usually the calendar year immediately following the calendar year of the owner's death. After the first distribution year, reduce your life expectancy by one for each subsequent year. If you are the owner's surviving spouse and the sole designated beneficiary, this is generally the year in which the owner would have reached age 70 1/2. After the first distribution year, use your age as of your birthday in each subsequent year.

Example 1. You are the owner's designated beneficiary figuring your first required minimum distribution. Distributions must begin in 2017. You become 57 years old in 2017. You use Table I. Your distribution period for 2018 is 26.9 (27.9 - 1) years. Your distribution period for 2019 is 25.9 (27.9 - 2). Note that the life expectancy was reduced by one for each year after the first distribution year, which was 2017.

Example 2. You are the owner's surviving spouse and the sole designated beneficiary. The owner would have turned age 70 1/2 in 2017. Distributions begin in 2017. You become 69 years old in 2017. You use Table I. Your distribution period for 2017 is 17.8. For 2018, when you are 70 years old, your distribution period is 17.0. For 2019, when you are 71 years old, your distribution period is 16.3.

Owner's life expectancy. In two cases where the owner dies on or after the required beginning date, you need to use the owner's life expectancy. First, you need to use it when the owner dies on or after the required beginning date and there is no designated beneficiary as of September 30 of the year following the year of the owner's death. In this case, use the owner's life expectancy for his or her age as of the owner's birthday in the year of death and reduce it by one for each subsequent year. Second, use the owner's life expectancy in the year of death (reduced by one for each subsequent year) if it results in a longer distribution period than using your life expectancy as detailed in Table I (Single Life Expectancy) above.

Table II (Joint Life and Last Survivor Expectancy). For your first distribution by the required beginning date, use your age and the age of your designated beneficiary as of your birthdays in the year you become age 70 1/2. Your combined life expectancy is at the intersection of your ages.

If you are figuring your required minimum distribution for 2017, use your ages as of your birthdays in 2017. For each subsequent year, use your and your spouse's ages as of your birthdays in the subsequent year.

Table III (Uniform Lifetime). For your first distribution by your required beginning date, use your age as of your birthday in the year you become age 70 1/2.

If you are figuring your required minimum distribution for 2017, use your age as of your birthday in 2017. For each subsequent year, use your age as of your birthday in the subsequent year.

Miscellaneous Rules for Required Minimum Distributions

The following rules may apply to you.

Installments allowed. The yearly required minimum distribution can be taken in a series of installments (monthly, quarterly, etc.) as long as the total distributions for the year are at least as much as the minimum required amount.

More than one IRA. If you have more than one traditional IRA, you must determine a separate required minimum distribution for each IRA. However, you can total these minimum amounts and take the total from any one or more of the IRAs.

Example. Sara, born August 1, 1945, became 70 1/2 on February 1, 2016. She has two traditional IRAs. She must begin receiving her IRA distributions by April 1, 2017. On December 31, 2015, Sara's account balance from IRA A was $10,000; her account balance from IRA B was $20,000. Sara's brother, age 64 as of his birthday in 2016, is the beneficiary of IRA A. Her husband, age 78 as of his birthday in 2016, is the beneficiary of IRA B.

Sara's required minimum distribution from IRA A is $377 ($10,000 ÷ 26.5 (the distribution period for age 71 per Table III)). The amount of the required minimum distribution from IRA B is $755 ($20,000 ÷ 26.5). The amount that must be withdrawn by Sara from her IRA accounts by April 1, 2017, is $1,132 ($377 + $755).

More than minimum received. If, in any year, you receive more than the required minimum amount for that year, you will not receive credit for the additional amount when determining the minimum required amounts for future years. This does not mean that you do not reduce your IRA account balance. It means that if you receive more than your required minimum distribution in one year, you cannot treat the excess (the amount that is more than the required minimum distribution) as part of your required minimum distribution for any later year. However, any amount distributed in your 70 1/2 year will be credited toward the amount that must be distributed by April 1 of the following year.

Example. Justin became 70 1/2 on December 15, 2016. Justin's IRA account balance on December 31, 2015, was $38,400. He figured his required minimum distribution for 2016 was $1,401 ($38,400 ÷ 27.4 (the distribution period for age 70 per Table III)). By December 31, 2016, he had actually received distributions totaling $3,600, $2,199 more than was required. Justin cannot use that $2,199 to reduce the amount he is required to withdraw for 2017, but his IRA account balance is reduced by the full $3,600 to figure his required minimum distribution for 2017. Justin's reduced IRA account balance on December 31, 2016, was $34,800. Justin figured his required minimum distribution for 2017 is $1,313 ($34,800 ÷ 26.5 (the distribution period for age 71 per Table III)). During 2017, he must receive distributions of at least that amount.

Multiple individual beneficiaries. If as of September 30 of the year following the year in which the owner dies there is more than one beneficiary, the beneficiary with the shortest life expectancy will be the designated beneficiary if both of the following apply.

The separate account rules cannot be used by beneficiaries of a trust.

Trust as beneficiary. A trust cannot be a designated beneficiary even if it is a named beneficiary. However, the beneficiaries of a trust will be treated as having been designated beneficiaries for purposes of determining required minimum distributions after the owner's death (or after the death of the owner's surviving spouse described in Death of surviving spouse prior to date distributions begin, earlier) if all of the following are true:

Trust beneficiary is another trust. If the beneficiary of the trust (which is the beneficiary of the IRA) is another trust and both trusts meet the above requirements, the beneficiaries of the other trust will be treated as having been designated as beneficiaries for purposes of determining the distribution period.

Note. The separate account rules, discussed earlier, cannot be used by beneficiaries of a trust.

TIP: You may want to contact a tax advisor to comply with this complicated area of the tax law.

Annuity distributions from an insurance company. Special rules apply if you receive distributions from your traditional IRA as an annuity purchased from an insurance company. See Regulations sections 1.401(a)(9)-6 and 54.4974-2. These regulations can be found in many libraries, IRS offices, and online at IRS.gov.

Are Distributions Taxable?

In general, distributions from a traditional IRA are taxable in the year you receive them.

Failed financial institutions. Distributions from a traditional IRA are taxable in the year you receive them even if they are made without your consent by a state agency as receiver of an insolvent savings institution. This means you must include such distributions in your gross income unless you roll them over.

Exceptions. Exceptions to distributions from traditional IRAs being taxable in the year you receive them are:

Qualified charitable distributions. A qualified charitable distribution (QCD) is generally a nontaxable distribution made directly by the trustee of your IRA (other than a SEP or SIMPLE IRA) to an organization eligible to receive tax deductible contributions. You must be at least age 70 1/2 when the distribution was made. Also, you must have the same type of acknowledgment of your contribution that you would need to claim a deduction for a charitable contribution. See Records To Keep in Pub. 526.

The maximum annual exclusion for QCDs is $100,000. Any QCD in excess of the $100,000 exclusion limit is included in income as any other distribution. If you file a joint return, your spouse can also have a QCD and exclude up to $100,000. The amount of the QCD is limited to the amount of the distribution that would otherwise be included in income. If your IRA includes nondeductible contributions, the distribution is first considered to be paid out of otherwise taxable income.

TIP: A QCD will count towards your required minimum distribution, discussed earlier.

CAUTION: You cannot claim a charitable contribution deduction for any QCD not included in your income.

Example. On December 23, 2016, Jeff, age 75, directed the trustee of his IRA to make a distribution of $25,000 directly to a qualified 501(c)(3) organization (a charitable organization eligible to receive tax-deductible contributions). The total value of Jeff's IRA is $30,000 and consists of $20,000 of deductible contributions and earnings and $10,000 of nondeductible contributions (basis). Since Jeff is at least age 70 1/2 and the distribution is made directly by the trustee to a qualified organization, the part of the distribution that would otherwise be includible in Jeff's income ($20,000) is a QCD.

In this case, Jeff has made a QCD of $20,000 (his deductible contributions and earnings). Because Jeff made a distribution of nondeductible contributions from his IRA, he must file Form 8606 with his return. Jeff includes the total distribution ($25,000) on line 15a of Form 1040. He completes Form 8606 to determine the amount to enter on line 15b of Form 1040 and the remaining basis in his IRA. Jeff enters -0- on line 15b. This is Jeff's only IRA and he took no other distributions in 2016. He also enters "QCD" next to line 15b to indicate a qualified charitable distribution.

After the distribution, his basis in his IRA is $5,000. If Jeff itemizes deductions and files Schedule A with Form 1040, the $5,000 portion of the distribution attributable to the nondeductible contributions can be deducted as a charitable contribution, subject to AGI limits. He cannot take the charitable contribution deduction for the $20,000 portion of the distribution that was not included in his income.

One-time qualified HSA funding distribution. You may be able to make a qualified HSA funding distribution from your traditional IRA or Roth IRA to your Health Savings Account (HSA). You cannot make this distribution from an ongoing SEP IRA or SIMPLE IRA. For this purpose, a SEP IRA or SIMPLE IRA is ongoing if an employer contribution is made for the plan year ending with or within your tax year in which the distribution would be made. The distribution must be less than or equal to your maximum annual HSA contribution.

This distribution must be made directly by the trustee of the IRA to the trustee of the HSA. The distribution is not included in your income, is not deductible, and reduces the amount that can be contributed to your HSA. You must make the distribution by the end of the year; the special rule allowing contributions to your HSA for the previous year if made by your tax return filing deadline does not apply. The qualified HSA funding distribution is reported on Form 8889 for the year in which the distribution is made.

One-time transfer. Generally, only one qualified HSA funding distribution is allowed during your lifetime. If you own two or more IRAs, and want to use amounts in multiple IRAs to make a qualified HSA funding distribution, you must first make an IRA-to-IRA transfer of the amounts to be distributed into a single IRA, and then make the one-time qualified HSA funding distribution from that IRA.

Testing period rules apply. If at any time during the testing period you cease to meet all requirements to be an eligible individual, the amount of the qualified HSA funding distribution is included in your gross income. The qualified HSA funding distribution is included in gross income in the taxable year you first fail to be an eligible individual. This amount is subject to the 10% additional tax (unless the failure is due to disability or death).

More information. See Pub. 969, for additional information about this distribution.

Ordinary income. Distributions from traditional IRAs that you include in income are taxed as ordinary income.

No special treatment. In figuring your tax, you cannot use the 10-year tax option or capital gain treatment that applies to lump-sum distributions from qualified retirement plans.

Distributions Fully or Partly Taxable

Distributions from your traditional IRA may be fully or partly taxable, depending on whether your IRA includes any nondeductible contributions.

Fully taxable. If only deductible contributions were made to your traditional IRA (or IRAs, if you have more than one), you have no basis in your IRA. Because you have no basis in your IRA, any distributions are fully taxable when received. See Reporting and Withholding Requirements for Taxable Amounts, later.

Partly taxable. If you made nondeductible contributions or rolled over any after-tax amounts to any of your traditional IRAs, you have a cost basis (investment in the contract) equal to the amount of those contributions. These nondeductible contributions are not taxed when they are distributed to you. They are a return of your investment in your IRA.

Only the part of the distribution that represents nondeductible contributions and rolled over after-tax amounts (your cost basis) is tax free. If nondeductible contributions have been made or after-tax amounts have been rolled over to your IRA, distributions consist partly of nondeductible contributions (basis) and partly of deductible contributions, earnings, and gains (if there are any). Until all of your basis has been distributed, each distribution is partly nontaxable and partly taxable.

Form 8606. You must complete Form 8606, and attach it to your return, if you receive a distribution from a traditional IRA and have ever made nondeductible contributions or rolled over after-tax amounts to any of your traditional IRAs. Using the form, you will figure the nontaxable distributions for 2016, and your total IRA basis for 2016 and earlier years. See the illustrated Forms 8606 in this chapter.

Note. If you are required to file Form 8606, but you are not required to file an income tax return, you still must file Form 8606. Complete Form 8606, sign it, and send it to the IRS at the time and place you would otherwise file an income tax return.

Figuring the Nontaxable and Taxable Amounts

If your traditional IRA includes nondeductible contributions and you received a distribution from it in 2016, you must use Form 8606 to figure how much of your 2016 IRA distribution is tax free.

Note. When figuring the nontaxable and taxable amounts of distributions made prior to death in the year the IRA account owner dies, the value of all traditional (including SEP) and SIMPLE IRAs should be figured as of the date of death instead of December 31.

Contribution and distribution in the same year. If you received a distribution in 2016 from a traditional IRA and you also made contributions to a traditional IRA for 2016 that may not be fully deductible because of the income limits, you can use Worksheet 1-1 to figure how much of your 2016 IRA distribution is tax free and how much is taxable. Then you can figure the amount of nondeductible contributions to report on Form 8606. Follow the instructions under Reporting your nontaxable distribution on Form 8606, next, to figure your remaining basis after the distribution.

Reporting your nontaxable distribution on Form 8606. To report your nontaxable distribution and to figure the remaining basis in your traditional IRA after distributions, you must complete Worksheet 1-1 before completing Form 8606. Then follow these steps to complete Form 8606.

 Keep for Your Records

 Year             Deductible        Nondeductible

The illustrated Form 8606 for Rose shows the information required when you need to use Worksheet 1-1 to figure your nontaxable distribution. Assume that the $500 entered on Form 8606, line 1, is the amount Rose figured using instructions 1 and 2 given earlier under Reporting your nontaxable distribution on Form 8606.

Worksheet 1-1. Figuring the Taxable Part of Your IRA Distribution--Illustrated

 Use only if you made contributions to a traditional IRA for 2016 that

If you have a loss on your traditional IRA investment, you can recognize (include) the loss on your income tax return, but only when all the amounts in all your traditional IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis, if any.

Your basis is the total amount of the nondeductible contributions in your traditional IRAs.

You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A (Form 1040). Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax.

Example. Bill King has made nondeductible contributions to a traditional IRA totaling $2,000, giving him a basis at the end of 2015 of $2,000. By the end of 2016, his IRA earns $400 in interest income. In that year, Bill receives a distribution of $600 ($500 basis + $100 interest), reducing the value of his IRA to $1,800 ($2,000 + $400 - $600) at year's end. Bill figures the taxable part of the distribution and his remaining basis on Form 8606 (illustrated).

In 2017, Bill's IRA has a loss of $500. At the end of that year, Bill's IRA balance is $1,300 ($1,800 - $500). Bill's remaining basis in his IRA is $1,500 ($2,000 - $500). Bill receives the $1,300 balance remaining in the IRA. He can claim a loss for 2017 of $200 (the $1,500 basis minus the $1,300 distribution of the IRA balance).

Two other special IRA distribution situations are discussed next.

Distribution of an annuity contract from your IRA account. You can tell the trustee or custodian of your traditional IRA account to use the amount in the account to buy an annuity contract for you. You are not taxed when you receive the annuity contract (unless the annuity contract is being converted to an annuity held by a Roth IRA). You are taxed when you start receiving payments under that annuity contract.

Tax treatment. If only deductible contributions were made to your traditional IRA since it was opened (this includes all your traditional IRAs, if you have more than one), the annuity payments are fully taxable.

If any of your traditional IRAs include both deductible and nondeductible contributions, the annuity payments are taxed as explained earlier under Distributions Fully or Partly Taxable.

Cashing in retirement bonds. When you cash in retirement bonds, you are taxed on the entire amount you receive. Unless you have already cashed them in, you will be taxed on the entire value of your bonds in the year in which you reach age 70 1/2. The value of the bonds is the amount you would have received if you had cashed them in at the end of that year. When you later cash in the bonds, you will not be taxed again.

Reporting and Withholding Requirements for Taxable Amounts

If you receive a distribution from your traditional IRA, you will receive Form 1099-R, or a similar statement. IRA distributions are shown in boxes 1 and 2a of Form 1099-R. A number or letter code in box 7 tells you what type of distribution you received from your IRA.

Number codes. Some of the number codes are explained below. All of the codes are explained in the instructions for recipients on Form 1099-R.

1--Early distribution, no known exception.

2--Early distribution, exception applies.

3--Disability.

4--Death.

5--Prohibited transaction.

7--Normal distribution.

8--Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2016.

CAUTION: If code 1, 5, or 8 appears on your Form 1099-R, you are probably subject to a penalty or additional tax. If code 1 appears, see Early Distributions, later. If code 5 appears, see Prohibited Transactions, later. If code 8 appears, see Excess Contributions in chapter 1 of Pub. 590-A.

Letter codes. Some of the letter codes are explained below. All of the codes are explained in the instructions for recipients on Form 1099-R.

B--Designated Roth account distribution.

G--Direct rollover of a distribution (other than a designated Roth account distribution) to a qualified plan, a section 403(b) plan, a governmental section 457(b) plan, or an IRA.

H--Direct rollover of a designated Roth account distribution to a Roth IRA.

J--Early distribution from a Roth IRA.

N--Recharacterized IRA contribution made for 2016 and recharacterized in 2016.

P--Excess contributions plus earnings/ excess deferrals taxable in 2015.

Q--Qualified distribution from a Roth IRA.

R--Recharacterized IRA contribution made for 2015 and recharacterized in 2016.

S--Early distribution from a SIMPLE IRA in the first 2 years, no known exception.

T--Roth IRA distribution, exception applies.

If the distribution shown on Form 1099-R is from your IRA, SEP IRA, or SIMPLE IRA, the small box in box 7 (labeled IRA/SEP/SIMPLE) should be marked with an "X."

CAUTION: If code J, P, or S appears on your Form 1099-R, you are probably subject to a penalty or additional tax. If code J appears, see Early Distributions, later. If code P appears, see Excess Contributions in chapter 1 of Pub. 560.

Withholding. Federal income tax is withheld from distributions from traditional IRAs unless you choose not to have tax withheld.

The amount of tax withheld from an annuity or a similar periodic payment is based on your marital status and the number of withholding allowances you claim on your withholding certificate (Form W-4P). If you have not filed a certificate, tax will be withheld as if you are a married individual claiming three withholding allowances.

Generally, tax will be withheld at a 10% rate on nonperiodic distributions.

IRA distributions delivered outside the United States. In general, if you are a U.S. citizen or resident alien and your home address is outside the United States or its possessions, you cannot choose exemption from withholding on distributions from your traditional IRA.

To choose exemption from withholding, you must certify to the payer under penalties of perjury that you are not a U.S. citizen, a resident alien of the United States, or a tax-avoidance expatriate.

Even if this election is made, the payer must withhold tax at the rates prescribed for nonresident aliens.

More information. For more information on withholding on pensions and annuities, see Pensions and Annuities in chapter 1 of Pub. 505. For more information on withholding on nonresident aliens and foreign entities, see Pensions, Annuities, and Alimony under Withholding on Specific Income in Pub. 515.

Reporting taxable distributions on your return. Report fully taxable distributions, including early distributions, on Form 1040, line 15b (no entry is required on line 15a); Form 1040A, line 11b (no entry is required on line 11a); or Form 1040NR, line 16b (no entry is required on line 16a). If only part of the distribution is taxable, enter the total amount on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a, and enter the taxable part on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. You cannot report distributions on Form 1040EZ or Form 1040NR-EZ.

Estate tax. Generally, the value of an annuity or other payment receivable by any beneficiary of a decedent's traditional IRA that represents the part of the purchase price contributed by the decedent (or by his or her former employer(s)) must be included in the decedent's gross estate. For more information, see the Instructions for Schedule I, Form 706.

What Acts Result in Penalties or Additional Taxes?

The tax advantages of using traditional IRAs for retirement savings can be offset by additional taxes and penalties if you do not follow the rules. There are additions to the regular tax for using your IRA funds in prohibited transactions. There are also additional taxes for the following activities.

This chapter discusses those acts (relating to distributions) that you should avoid and the additional taxes and other costs, including loss of IRA status, that apply if you do not avoid those acts.

Prohibited Transactions

Generally, a prohibited transaction is any improper use of your traditional IRA account or annuity by you, your beneficiary, or any disqualified person.

Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant).

The following are some examples of prohibited transactions with a traditional IRA.

Fiduciary. For these purposes, a fiduciary includes anyone who does any of the following.

Effect on you or your beneficiary. If your account stops being an IRA because you or your beneficiary engaged in a prohibited transaction, the account is treated as distributing all its assets to you at their fair market values on the first day of the year. If the total of those values is more than your basis in the IRA, you will have a taxable gain that is includible in your income. For information on figuring your gain and reporting it in income, see Are Distributions Taxable?, earlier. The distribution may be subject to additional taxes or penalties.

Borrowing on an annuity contract. If you borrow money against your traditional IRA annuity contract, you must include in your gross income the fair market value of the annuity contract as of the first day of your tax year. You may have to pay the 10% additional tax on early distributions, discussed later.

Pledging an account as security. If you use a part of your traditional IRA account as security for a loan, that part is treated as a distribution and is included in your gross income. You may have to pay the 10% additional tax on early distributions, discussed later.

Trust account set up by an employer or an employee association. Your account or annuity does not lose its IRA treatment if your employer or the employee association with whom you have your traditional IRA engages in a prohibited transaction.

Owner participation. If you participate in the prohibited transaction with your employer or the association, your account is no longer treated as an IRA.

Taxes on prohibited transactions. If someone other than the owner or beneficiary of a traditional IRA engages in a prohibited transaction, that person may be liable for certain taxes. In general, there is a 15% tax on the amount of the prohibited transaction and a 100% additional tax if the transaction is not corrected.

Loss of IRA status. If the traditional IRA ceases to be an IRA because of a prohibited transaction by you or your beneficiary, you or your beneficiary are not liable for these excise taxes. However, you or your beneficiary may have to pay other taxes as discussed under Effect on you or your beneficiary, earlier.

Exempt Transactions

The following two types of transactions are not prohibited transactions if they meet the requirements that follow.

Services received at reduced or no cost. Even if a sponsor provides services at reduced or no cost, there is no prohibited transaction if all of the following requirements are met.

If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. You may have to pay the 10% additional tax on early distributions, discussed later.

Any amounts that were considered to be distributed when the investment in the collectible was made, and which were included in your income at that time, are not included in your income when the collectible is actually distributed from your IRA.

Collectibles. These include:

Early Distributions

You must include early distributions of taxable amounts from your traditional IRA in your gross income. Early distributions are also subject to an additional 10% tax, as discussed later.

Early distributions defined. Early distributions generally are amounts distributed from your traditional IRA account or annuity before you are age 59 1/2, or amounts you receive when you cash in retirement bonds before you are age 59 1/2.

Age 59 1/2 Rule

Generally, if you are under age 59 1/2, you must pay a 10% additional tax on the distribution of any assets (money or other property) from your traditional IRA. Distributions before you are age 59 1/2 are called early distributions.

The 10% additional tax applies to the part of the distribution that you have to include in gross income. It is in addition to any regular income tax on that amount.

A number of exceptions to this rule are discussed later under Exceptions. Also see Contributions Returned Before Due Date of Return in chapter 1 of Pub. 590-A.

CAUTION: You may have to pay a 25%, rather than a 10%, additional tax if you receive distributions from a SIMPLE IRA before you are age 59 1/2. See Distributions (Withdrawals) in chapter 3 of Pub. 560.

After age 59 1/2 and before age 70 1/2. After you reach age 59 1/2, you can receive distributions without having to pay the 10% additional tax. Even though you can receive distributions after you reach age 59 1/2, distributions are not required until you reach age 70 1/2. See When Must You Withdraw Assets? (Required Minimum Distributions), earlier.

Exceptions

There are several exceptions to the age 59 1/2 rule. Even if you receive a distribution before you are age 59 1/2, you may not have to pay the 10% additional tax if you are in one of the following situations.

Note. Distributions that are timely and properly rolled over, as discussed in chapter 1 of Pub. 590-A, are not subject to either regular income tax or the 10% additional tax. Certain withdrawals of excess contributions after the due date of your return are also tax free and therefore not subject to the 10% additional tax. (See Excess Contributions Withdrawn After Due Date of Return, in chapter 1 of Pub. 590-A.) This also applies to transfers incident to divorce, as discussed under Can You Move Retirement Plan Assets? in chapter 1 of Pub. 590-A.

Receivership distributions. Early distributions (with or without your consent) from savings institutions placed in receivership are subject to this tax unless one of the above exceptions applies. This is true even if the distribution is from a receiver that is a state agency.

Unreimbursed medical expenses. Even if you are under age 59 1/2, you do not have to pay the 10% additional tax on distributions that are not more than:

Adjusted gross income. This is the amount on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37.

Medical insurance. Even if you are under age 59 1/2, you may not have to pay the 10% additional tax on distributions during the year that are not more than the amount you paid during the year for medical insurance for yourself, your spouse, and your dependents. You will not have to pay the tax on these amounts if all of the following conditions apply.

You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration.

Beneficiary. If you die before reaching age 59 1/2, the assets in your traditional IRA can be distributed to your beneficiary or to your estate without either having to pay the 10% additional tax.

However, if you inherit a traditional IRA from your deceased spouse and elect to treat it as your own (as discussed under What if You Inherit an IRA?, earlier), any distribution you later receive before you reach age 59 1/2 may be subject to the 10% additional tax.

Annuity. You can receive distributions from your traditional IRA that are part of a series of substantially equal payments over your life (or your life expectancy), or over the lives (or the joint life expectancies) of you and your beneficiary, without having to pay the 10% additional tax, even if you receive such distributions before you are age 59 1/2. You must use an IRS-approved distribution method and you must take at least one distribution annually for this exception to apply. The "required minimum distribution method," when used for this purpose, results in the exact amount required to be distributed, not the minimum amount.

There are two other IRS-approved distribution methods that you can use. They are generally referred to as the "fixed amortization method" and the "fixed annuitization method." These two methods are not discussed in this publication because they are more complex and generally require professional assistance. For information on these methods, see Revenue Ruling 2002-62, which is on page 710 of Internal Revenue Bulletin 2002-42 at http://www.irs.gov/pub/irs-irbs/irb02-42.pdf.

Recapture tax for changes in distribution method under equal payment exception. You may have to pay an early distribution recapture tax if, before you reach age 59 1/2, the distribution method under the equal periodic payment exception changes (for reasons other than your death or disability). The tax applies if the method changes from the method requiring equal payments to a method that would not have qualified for the exception to the tax. The recapture tax applies to the first tax year to which the change applies. The amount of tax is the amount that would have been imposed had the exception not applied, plus interest for the deferral period.

You may have to pay the recapture tax if you do not receive the payments for at least 5 years under a method that qualifies for the exception. You may have to pay it even if you modify your method of distribution after you reach age 59 1/2. In that case, the tax applies only to payments distributed before you reach age 59 1/2.

Report the recapture tax and interest on line 4 of Form 5329. Attach an explanation to the form. Do not write the explanation next to the line or enter any amount for the recapture on lines 1 or 3 of the form.

One-time switch. If you are receiving a series of substantially equal periodic payments, you can make a one-time switch to the required minimum distribution method at any time without incurring the additional tax. Once a change is made, you must follow the required minimum distribution method in all subsequent years.

Higher education expenses. Even if you are under age 59 1/2, if you paid expenses for higher education during the year, part (or all) of any distribution may not be subject to the 10% additional tax. The part not subject to the tax is generally the amount that is not more than the qualified higher education expenses (defined next) for the year for education furnished at an eligible educational institution (defined below). The education must be for you, your spouse, or the children or grandchildren of you or your spouse.

When determining the amount of the distribution that is not subject to the 10% additional tax, include qualified higher education expenses paid with any of the following funds.

Eligible educational institution. This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in the student aid programs administered by the U.S. Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

For more information, see chapter 9 of Pub. 970.

First home. Even if you are under age 59 1/2, you do not have to pay the 10% additional tax on up to $10,000 of distributions you receive to buy, build, or rebuild a first home. To qualify for treatment as a first-time homebuyer distribution, the distribution must meet all the following requirements.

Qualified acquisition costs. Qualified acquisition costs include the following items.

Date of acquisition. The date of acquisition is the date that:

Qualified reservist distributions. A qualified reservist distribution is not subject to the additional tax on early distributions.

Definition. A distribution you receive is a qualified reservist distribution if the following requirements are met.

The additional tax on early distributions is 10% of the amount of the early distribution that you must include in your gross income. This tax is in addition to any regular income tax resulting from including the distribution in income.

Use Form 5329 to figure the tax. See the discussion of Form 5329, later, under Reporting Additional Taxes for information on filing the form.

Example. Tom Jones, who is 35 years old, receives a $3,000 distribution from his traditional IRA account. Tom does not meet any of the exceptions to the 10% additional tax, so the $3,000 is an early distribution. Tom never made any nondeductible contributions to his IRA. He must include the $3,000 in his gross income for the year of the distribution and pay income tax on it. Tom must also pay an additional tax of $300 (10% × $3,000). He files Form 5329. See the filled-in Form 5329, later.

CAUTION: Early distributions of funds from a SIMPLE retirement account made within 2 years of beginning participation in the SIMPLE are subject to a 25%, rather than a 10%, early distributions tax.

Nondeductible contributions. The tax on early distributions does not apply to the part of a distribution that represents a return of your nondeductible contributions (basis).

Excess Accumulations (Insufficient Distributions)

You cannot keep amounts in your traditional IRA (including SEP and SIMPLE IRAs) indefinitely. Generally, you must begin receiving distributions by April 1 of the year following the year in which you reach age 70 1/2. The required minimum distribution for any year after the year in which you reach age 70 1/2 must be made by December 31 of that later year.

Tax on excess. If distributions are less than the required minimum distribution for the year, discussed earlier under When Must You Withdraw Assets? (Required Minimum Distributions), you may have to pay a 50% excise tax for that year on the amount not distributed as required.

Reporting the tax. Use Form 5329 to report the tax on excess accumulations. See the discussion of Form 5329, later, under Reporting Additional Taxes, for more information on filing the form.

Request to waive the tax. If the excess accumulation is due to reasonable error, and you have taken, or are taking, steps to remedy the insufficient distribution, you can request that the tax be waived. If you believe you qualify for this relief, attach a statement of explanation and complete Form 5329 as instructed under Waiver of tax in the Instructions for Form 5329.

Exemption from tax. If you are unable to take required distributions because you have a traditional IRA invested in a contract issued by an insurance company that is in state insurer delinquency proceedings, the 50% excise tax does not apply if the conditions and requirements of Revenue Procedure 92-10 are satisfied. Those conditions and requirements are summarized below. Revenue Procedure 92-10 is in Cumulative Bulletin 1992-1. You can read the revenue procedure at most IRS offices, at many public libraries, and online at IRS.gov.

Conditions. To qualify for exemption from the tax, the assets in your traditional IRA must include an affected investment. Also, the amount of your required distribution must be determined as discussed earlier under When Must You Withdraw Assets? (Required Minimum Distributions).

Affected investment defined. Affected investment means an annuity contract or a guaranteed investment contract (with an insurance company) for which payments under the terms of the contract have been reduced or suspended because of state insurer delinquency proceedings against the contracting insurance company.

Requirements. If your traditional IRA (or IRAs) includes assets other than your affected investment, all traditional IRA assets, including the available portion of your affected investment, must be used to satisfy as much as possible of your IRA distribution requirement. If the affected investment is the only asset in your IRA, as much of the required distribution as possible must come from the available portion, if any, of your affected investment.

Make up of shortfall in distribution. If the payments to you under the contract increase because all or part of the reduction or suspension is canceled, you must make up the amount of any shortfall in a prior distribution because of the proceedings. You make up (reduce or eliminate) the shortfall with the increased payments you receive.

You must make up the shortfall by December 31 of the calendar year following the year that you receive increased payments.

Reporting Additional Taxes

Generally, you must use Form 5329 to report the tax on excess contributions, early distributions, and excess accumulations. If you must file Form 5329, you cannot use Form 1040EZ, or Form 1040NR-EZ.

Filing a tax return. If you must file an individual income tax return, complete Form 1040 or Form 1040NR. Enter the total additional taxes due on Form 1040, line 59, or on Form 1040NR, line 57.

Not filing a tax return. If you do not have to file a return, but do have to pay one of the additional taxes mentioned earlier, file the completed Form 5329 with the IRS at the time and place you would have filed Form 1040 or Form 1040NR. Be sure to include your address on page 1 and your signature and date on page 2. Enclose, but do not attach, a check or money order payable to the United States Treasury for the tax you owe, as shown on Form 5329. Write your social security number and "2016 Form 5329" on your check or money order.

Form 5329 not required. You do not have to use Form 5329 if either of the following situations exists.

Reminders

Deemed IRAs. For plan years beginning after 2002, a qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. An employee's account can be treated as a traditional IRA or a Roth IRA.

For this purpose, a "qualified employer plan" includes:

Introduction

Regardless of your age, you may be able to establish and make nondeductible contributions to an individual retirement plan called a Roth IRA.

Contributions not reported. You do not report Roth IRA contributions on your return.

What Is a Roth IRA?

A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA (defined next). It can be either an account or an annuity. Individual retirement accounts and annuities are described in How Can a Traditional IRA Be Opened? in chapter 1 of Pub. 590-A.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened. A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA.

Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. Contributions can be made to your Roth IRA after you reach age 70 1/2 and you can leave amounts in your Roth IRA as long as you live.

Traditional IRA. A traditional IRA is any IRA that is not a Roth IRA or SIMPLE IRA. Traditional IRAs are discussed in chapter 1.

Are Distributions Taxable?

You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). You also do not include distributions from your Roth IRA that you roll over tax free into another Roth IRA. You may have to include part of other distributions in your income. See Ordering Rules for Distributions, later.

Basis of distributed property. The basis of property distributed from a Roth IRA is its fair market value (FMV) on the date of distribution, whether or not the distribution is a qualified distribution.

Withdrawals of contributions by due date. If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions.

What Are Qualified Distributions?

A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

If you receive a distribution that is not a qualified distribution, you may have to pay the 10% additional tax on early distributions as explained in the following paragraphs.

Distributions of conversion and certain rollover contributions within 5-year period. If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or rollover an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income (recapture amount). A separate 5-year period applies to each conversion and rollover. See Ordering Rules for Distributions, later, to determine the recapture amount, if any.

The 5-year period used for determining whether the 10% early distribution tax applies to a distribution from a conversion or rollover contribution is separately determined for each conversion and rollover, and is not necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution. See What Are Qualified Distributions?, earlier.

For example, if a calendar-year taxpayer makes a conversion contribution on February 25, 2016, and makes a regular contribution for 2015 on the same date, the 5-year period for the conversion begins January 1, 2016, while the 5-year period for the regular contribution begins on January 1, 2015.

Unless one of the exceptions listed later applies, you must pay the additional tax on the portion of the distribution attributable to the part of the conversion or rollover contribution that you had to include in income because of the conversion or rollover.

You must pay the 10% additional tax in the year of the distribution, even if you had included the conversion or rollover contribution in an earlier year. You also must pay the additional tax on any portion of the distribution attributable to earnings on contributions.

Other early distributions. Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions.

Exceptions. You may not have to pay the 10% additional tax in the following situations.

If you receive a distribution from your Roth IRA that is not a qualified distribution, part of it may be taxable. There is a set order in which contributions (including conversion contributions and rollover contributions from qualified retirement plans) and earnings are considered to be distributed from your Roth IRA. For these purposes, disregard the withdrawal of excess contributions and the earnings on them (discussed under What if You Contribute Too Much? in chapter 2 of Pub. 590-A). Order the distributions as follows.

Aggregation (grouping and adding) rules. Determine the taxable amounts distributed (withdrawn), distributions, and contributions by grouping and adding them together as follows.

Disregard any recharacterized contribution that ends up in an IRA other than a Roth IRA for the purpose of grouping (aggregating) both contributions and distributions. Also disregard any amount withdrawn to correct an excess contribution (including the earnings withdrawn) for this purpose.

Example. On October 15, 2012, Justin converted all $80,000 in his traditional IRA to his Roth IRA. His Forms 8606 from prior years show that $20,000 of the amount converted is his basis.

Justin included $60,000 ($80,000 - $20,000) in his gross income.

On February 23, 2016, Justin made a regular contribution of $5,000 to a Roth IRA. On November 8, 2016, at age 60, Justin took a $7,000 distribution from his Roth IRA.

The first $5,000 of the distribution is a return of Justin's regular contribution and is not includible in his income.

The next $2,000 of the distribution is not includible in income because it was included previously.

Figuring your recapture amount. If you had an early distribution from your Roth IRAs in 2016, you must allocate the early distribution by using the Recapture Amount--Allocation Chart, later.

Recapture Amount--Allocation Chart

 Enter the amount from your 2016 Form 8606, line 19             _______

Example. Ishmael, age 32, opened a Roth IRA in 2000. He made the following transactions into his Roth IRA.

In August of 2016, he took a $85,500 early distribution from his Roth IRA to use as a down payment on the purchase of his first home. See his filled out Illustrated Recapture Amount--Allocation Chart, later, to see how he allocated the amounts from the above transactions. Based on his allocation, he would enter $20,000 on his 2016 Form 5329, line 1 (see Amount to include on Form 5329, line 1, earlier). He should also report $10,000 on his 2016 Form 5329, line 2, and enter exception 09 since that amount is not subject to the 10% additional tax on early distributions.

Illustrated Recapture Amount--Allocation Chart

 Enter the amount from your 2016 Form 8606, line 19             $85,500

Must You Withdraw or Use Assets?

You are not required to take distributions from your Roth IRA at any age. The minimum distribution rules that apply to traditional IRAs do not apply to Roth IRAs while the owner is alive. However, after the death of a Roth IRA owner, certain of the minimum distribution rules that apply to traditional IRAs also apply to Roth IRAs as explained later under Distributions After Owner's Death.

Minimum distributions. You cannot use your Roth IRA to satisfy minimum distribution requirements for your traditional IRA. Nor can you use distributions from traditional IRAs for required distributions from Roth IRAs. See Distributions to beneficiaries, later.

Recognizing Losses on Investments

If you have a loss on your Roth IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all of your Roth IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis.

Your basis is the total amount of contributions in your Roth IRAs.

You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A (Form 1040). Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax.

Distributions After Owner's Death

If a Roth IRA owner dies, the minimum distribution rules that apply to traditional IRAs apply to Roth IRAs as though the Roth IRA owner died before his or her required beginning date. See When Can You Withdraw or Use Assets? in chapter 1.

Distributions to beneficiaries. Generally, the entire interest in the Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner's death unless the interest is payable to a designated beneficiary over the life or life expectancy of the designated beneficiary. See When Must You Withdraw Assets? (Required Minimum Distributions) in chapter 1.

If paid as an annuity, the entire interest must be payable over a period not greater than the designated beneficiary's life expectancy and distributions must begin before the end of the calendar year following the year of death. Distributions from another Roth IRA cannot be substituted for these distributions unless the other Roth IRA was inherited from the same decedent.

If the sole beneficiary is the spouse, he or she can either delay distributions until the decedent would have reached age 70 1/2 or treat the Roth IRA as his or her own.

Combining with other Roth IRAs. A beneficiary can combine an inherited Roth IRA with another Roth IRA maintained by the beneficiary only if the beneficiary either:

If the owner of a Roth IRA dies before the end of:

Example. When Ms. Hibbard died in 2016, her Roth IRA contained regular contributions of $4,000, a conversion contribution of $10,000 that was made in 2012, and earnings of $2,000. No distributions had been made from her IRA. She had no basis in the conversion contribution in 2012.

When she established this Roth IRA (her first) in 2012, she named each of her four children as equal beneficiaries. Each child will receive one-fourth of each type of contribution and one-fourth of the earnings. An immediate distribution of $4,000 to each child will be treated as $1,000 from regular contributions, $2,500 from conversion contributions, and $500 from earnings.

In this case, because the distributions are made before the end of the applicable 5-year period for a qualified distribution, each beneficiary includes $500 in income for 2016. The 10% additional tax on early distributions does not apply because the distribution was made to the beneficiaries as a result of the death of the IRA owner.

CAUTION: If distributions from an inherited Roth IRA are less than the required minimum distribution for the year, discussed in chapter 1 under When Must You Withdraw Assets? (Required Minimum Distributions), you may have to pay a 50% excise tax for that year on the amount not distributed as required. For the tax on excess accumulations (insufficient distributions), see Excess Accumulations (Insufficient Distributions) under What Acts Result in Penalties or Additional Taxes? in chapter 1. If this applies to you, substitute "Roth IRA" for "traditional IRA" in that discussion.

3. How To Get Tax Help

If you have questions about a tax issue, need help preparing your tax return, or want to download free publications, forms, or instructions, go to IRS.gov and find resources that can help you right away.

Preparing and filing your tax return. Find free options to prepare and file your return on IRS.gov or in your local community if you qualify.

The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $54,000 or less, persons with disabilities, the elderly, and limited-English-speaking taxpayers who need help preparing their own tax returns. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors.

You can go to IRS.gov and click on the Filing tab to see your options for preparing and filing your return which include the following.

Using direct deposit. The fastest way to receive a tax refund is to combine direct deposit and IRS e-file. Direct deposit securely and electronically transfers your refund directly into your financial account. Eight in 10 taxpayers use direct deposit to receive their refund. IRS issues more than 90% of refunds in less than 21 days.

Delayed refund for returns claiming certain credits. Due to changes in the law, the IRS can't issue refunds before February 15, 2017, for returns that claim the earned income credit (EIC) or the additional child tax credit (ACTC). This applies to the entire refund, not just the portion associated with these credits.

Getting a transcript or copy of a return. The quickest way to get a copy of your tax transcript is to go to IRS.gov/transcripts. Click on either "Get Transcript Online" or "Get Transcript by Mail" to order a copy of your transcript. If you prefer, you can:

Understanding an IRS notice or letter. Go to IRS.gov/notices to find additional information about responding to an IRS notice or letter.

Contacting your local IRS office. Keep in mind, many questions can be resolved on IRS.gov without visiting an IRS Tax Assistance Center (TAC). Go to IRS.gov/letushelp for the topics people ask about most. If you still need help, IRS TACs provide tax help when a tax issue can't be handled online or by phone. All TACs now provide service by appointment so you'll know in advance that you can get the service you need without waiting. Before you visit, go to IRS.gov/taclocator to find the nearest TAC, check hours, available services, and appointment options. Or, on the IRS2Go app, under the Stay Connected tab, choose the Contact Us option and click on "Local Offices."

Watching IRS videos. The IRS Video portal (IRSvideos.gov) contains video and audio presentations for individuals, small businesses, and tax professionals.

Getting tax information in other languages. For taxpayers whose native language isn't English, we have the following resources available. Taxpayers can find information on IRS.gov in the following languages.

The Taxpayer Advocate Service Is Here To Help You

What is the Taxpayer Advocate Service? The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.

What Can the Taxpayer Advocate Service Do For You? We can help you resolve problems that you can't resolve with the IRS. And our service is free. If you qualify for our assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:

How Can You Learn About Your Taxpayer Rights? The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Our Tax Toolkit at taxpayeradvocate.irs.gov can help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.

How Else Does the Taxpayer Advocate Service Help Taxpayers? TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to us at IRS.gov/sams.

Low Income Taxpayer Clinics

Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. To find a clinic near you, visit IRS.gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List.

Appendices

To help you complete your tax return, use the following appendices that include worksheets and tables.

 Keep for Your Records