PLANNING PENSION DISTRIBUTIONS

An individual may begin withdrawing, without penalty, from his or her qualified pension plans at the age of 59-1/2. Generally, distributions before age 59-1/2 are subject to a federal penalty equal to 10% of the taxable amount of the distribution, but there are several exceptions that will allow earlier withdrawal without penalty. Upon reaching age 70-1/2 (or, except in the case of a 5-percent owner, if later, upon retiring), you are required to take distributions from your plans or face a substantial penalty for failing to do so. The “retirement if later” exception does not apply to IRAs.

• Impact of Your Marginal Rate – If you are able to plan your withdrawals, you can save considerable tax dollars. This is not always possible, but the basic premise is to take distributions and pay the resulting tax in years when your marginal rate is low. Also watch for years when, for a variety of reasons, your taxable income is negative and some amount of distributions could be taken tax-free if age 59-1/2 and over. The penalty only applies to those under 59-1/2.
• Impact on Social Security – For retired individuals receiving Social Security benefits, planning IRA distributions can also be beneficial. Social Security itself is only taxable when the total of one-half of the taxpayer’s Social Security benefits plus the taxpayer’s other income exceeds $25,000 ($32,000 for a married couple filing jointly). Once this threshold is reached, every additional dollar of other income will cause 50% to 85% of the Social Security benefits to also become taxable. Therefore, if a taxpayer’s other income is under the threshold, it is generally good practice to withdraw just enough taxable IRA funds to bring the income up to the threshold amount, even if the funds are not needed in that year. They can be set aside for a future year when they might be used for some unplanned need or large purchase. However, this strategy may not work if IRA distributions are required to be made (see next section).
• Minimum Distribution Requirements – The IRS does not allow taxpayers to keep funds in qualified plans indefinitely. Eventually, assets must be distributed and taxes paid. If there are no distributions, or if the distributions are not large enough, the owner may have to pay a 50% penalty of the amount not distributed as required. Generally, distributions must begin in the year the plan owner reaches the age of 70-1/2. In most cases, the required minimum distribution can be figured using the “life” factor from the following table, which is divided into the value of the account as of the end of the preceding tax year. So, for example, an individual who reaches age 73 in 2017 and whose IRA had a value on December 31, 2016 of $50,000, would be required to withdraw $2,024.29 in 2017 ($50,000/24.7).
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  UNIFORM LIFETIME TABLE
  Age	Life	Age	Life	Age	Life	Age	Life	Age	Life
  70	27.4	80	18.7	90	11.4	100	6.3	110	3.1
  71	26.5	81	17.9	91	10.8	101	5.9	111	2.9
  72	25.6	82	17.1	92	10.2	102	5.5	112	2.6
  73	24.7	83	16.3	93	9.6	103	5.2	113	2.4
  74	23.8	84	15.5	94	9.1	104	4.9	114	2.1
  75	22.9	85	14.8	95	8.6	105	4.5	115	1.9
  76	22.0	86	14.1	96	8.1	106	4.2
  77	21.2	87	13.4	97	7.6	107	3.9
  78	20.3	88	12.7	98	7.1	108	3.7
  79	19.5	89	12.0	99	6.7	109	3.4