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Psst! Withdrawal loopholes
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December 6, 2000: 12:13 p.m. ET
You don't always have to start taking money out of your IRA at 70-1/2
By Ed Slott
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NEW YORK (CNNfn) - Everybody likes a loophole, especially when it comes to money. And believe it or not, when it comes to your IRA, there are ways to get around required withdrawal rules.
For most people with IRAs and company retirement plans, you have to start making withdrawals on April 1 of the year after you turn 70-1/2. But this Required Beginning Date, or RBD, has some exceptions.
There are situations where distributions are required for those who have not yet reached anywhere near age 70-1/2. There are other scenarios where a 90-year old IRA owner still has not reached his or her RBD.
Visit Ed Slott's irahelp.com
How can that be? Here's the lowdown.
Exceptions to the rule
Still working exception: If you are still working, you can delay distributions on your company retirement plan until April 1 of the year following the year you retire, regardless of your age. So under the "still working" exception, even if you are 90 years old and still working, you have not yet reached your RBD for distributions from the company plan of your current employer.
This exception only applies to company retirement plan money of the company you are still working for. It does not apply to a company plan from a company you no longer work for and it does not apply to IRAs. Even if you are still working, you cannot delay distributions from your IRA beyond the regular RBD.
Read Ed Slott's columns on the three most important decisions you'll make with your IRA: Choosing a beneficiary, picking a life expectancy and picking a distribution method.
It gets even trickier.
There's also an exception to the exception. If you are self-employed, this exception does not apply to you. It only applies to company plans from a company that you are still working for which you do not own. Since most self-employed business owners own their own company, they do not qualify for this exception. What if you only own a part of your company? The rule is that if you own more than five percent of your company, then you own too much to be eligible for the exception. So if you have a SEP or Keogh from your self-employed business, your RBD is the regular April 1st date.
403(b) plans
If you are a participant in a Section 403(b) plan (for teachers and other public employees), here's a little known exception to the general RBD.
Due to the tax law change back in 1986, required distributions on pre-1987 403(b) plan assets do not have to begin until you reach age 75, even if you have retired. In 403(b) plans, pre-1987 plan money is commonly referred to as "Old Money" and post –1986 403(b) plan money is known as "New Money."
The old money is grandfathered and distributions on that money (the pre-1987 money) are not required until you reach age 75, but only if you are able to maintain a separate accounting of your pre-1987 403(b) plan balance.
Often your 403(b) account statements show a Dec. 31, 1986 plan balance exactly for this reason. In case you were wondering why that was on your statement, now you know. New 403(b) plan money is subject to the regular RBD.
Beneficiaries
Certain IRA beneficiaries are subject to required distributions regardless of age.
For example, if you are 40 years old and inherited your parent's IRA, your RBD is well before you reach age 70 1/2. If your parent died in 1999 and was already taking distributions (because he was past his RBD), your RBD for distributions on your inherited IRA is Dec. 31, 2000, even though you're only 40. You cannot wait until April 1 of next year or any year, because the April 1st date does not apply to non-spouse IRA beneficiaries. The April 1st date only applies to IRA owners.
If, on the other hand, your parent died in 1999, but before he reached his RBD, then your RBD depends on which distribution option you elect. The general option is the FiveYear Rule, but that should generally not be used. Under the Five Year Rule, the entire inherited IRA must be distributed by Dec. 31, 2004.
In that case, your RBD would be Dec. 31, 2004, but the entire IRA account balance must be emptied at that time, ending any further tax deferral.
The better option is to elect out of the Five Year Rule simply by taking your first required distribution no later than Dec. 31, 2000, which in this example is the end of the year after the year of the IRA owner's death. That would make Dec. 31, 2000 your RBD, if you elect out of the Five Year Rule.
Spouses
 People who inherit an IRA from their spouse have some special rules that provide them with further exceptions to the regular RBD.
For example, if you are an 80-year old who inherits an IRA from your spouse, you have the option (as does a spouse at any age) to roll over to your own IRA.
Assume your spouse died this year at age 75 and you roll over immediately in the same year. The IRA is now deemed yours. So here you are at 80 years old with an IRA, but you still have not yet reached your RBD. If you rolled over in 2000, your RBD is not until Dec. 31, 2001.
If your spouse was only 65-years old when he died, and you chose not to roll over, your RBD can be delayed for another five years, regardless of how old you are. Even if you were 80 years old when he died, you would not reach your RBD until age 85 (five years later). Spouses have a special exception that lets them delay required distributions until Dec. 31 of the year the deceased spouse would have reached age 70-1/2, even if the inheriting spouse is already past age 70-1/2.
The bottom line is that everyone's RBD can be different. Better check yours. 
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