(Article from Kiplinger's Retirement Report, September 2004)

Dates play a crucial role for IRA owners and beneficiaries. Forgetting certain deadlines can result in penalties to the IRS or faster withdrawal schedules for beneficiaries. Here are critical dates that IRA owners and recent IRA heirs should mark on their calendars.

For owners
Delaying distributions from a tax-deferred IRA allows you to build more wealth, but you can't postpone withdrawals forever. For your first distribution only, you have until April 1 of the year after you turn 70½ to begin withdrawing money. After that, you must take minimum distributions by December 31 of each year. Thus, if you turn 70½ in October 2004, you have until April 1, 2005, to take your 2004 distribution. You still must take your 2005 distribution for that year by December 31. As a result, you may find yourself taking two distributions in one year, potentially bumping you into a higher tax bracket.

(If you don't take out the minimum amount, Uncle Sam will charge a 50% penalty on the difference that you did not withdraw.)

What you must take out
To determine your minimum distribution amount for the current year, your IRA custodian will take the value of your IRA on December 31 of the previous year and divide it by a number based on your life expectancy. (The divisor tables are in IRS Publication 590.) If you turn 75 this year, the divisor is 22.4. So if your IRA was valued at $1 million on December 31, 2003, you must withdraw at least $43,668 from your account by the end of 2004.

If you're not yet 70½, you can continue to make contributions to your IRA. The deadline to contribute to an IRA for a particular tax year is April 15 of the following year. So you have until April 15, 2005, to make contributions that will count toward the 2004 tax year.

For beneficiaries
Beneficiaries who have recently inherited IRAs also have some important dates to remember: September 30 and December 31 of the year after the IRA owner dies. Although IRS instructions are ambiguous, IRA expert Ed Slott, publisher of Ed Slott's IRA Advisor newsletter, says it seems that September 30 is the date by which the designated beneficiaries must be determined. December 31 is likely the date by which the administrative work--such as paperwork to split an IRA among several beneficiaries--must be filed. These dates are significant in case of multiple named beneficiaries; to be on the safe side, beneficiaries should split their shares of an IRA by September 30, Slott says.

Splitting the account
Determining the designated beneficiaries doesn't mean a beneficiary can be added posthumously, but it does allow time for some after-death planning. For example, let's say you named your wife and two children as beneficiaries of your IRA. If the IRA stays in one account, their mandatory distributions would be based on the life expectancy of the oldest beneficiary--your wife. This means your children would have to withdraw more money from the IRA each year than they would if the distributions were based on their own life expectancies. But under IRA rules revised in 2002, multiple beneficiaries of one account can now split it into separate accounts--one for each beneficiary, thus allowing each to take required distributions based on his or her own life expectancy, provided they split the account by September 30 of the year after the IRA owner's death.

It's especially critical for a spouse to create her own separate account if she's one of several designated beneficiaries. If she doesn't, she will lose her spousal options, including the option to roll the IRA into her own IRA account and name new beneficiaries.

There is an exception to the September 30 date. If you disclaim an inherited IRA, you must do so within nine months after the time you are eligible to receive it. For example, if you inherited an IRA from someone who passed away on August 1, 2004, you would have until April 30, 2005, to disclaim it.