Do I have to liquidate my IRA at some point?

Q: Is there a maximum age by which I have to liquidate my IRA?

A: There are rules requiring you to start making distributions from an IRA in certain cases, but technically there is not an age when you must fully liquidate it. This is because IRA distributions are designed to be spread out over your remaining expected lifespan, with the pace of those distributions being adjusted the longer you live. As a practical matter though, if you get several years into the schedule of required minimum distributions (RMDs), you may decide to liquidate the IRA at some point if it gets to be so small that keeping it open is more trouble than it is worth.

Required minimum distributions for IRAs

Whether and how you must start taking RMDs depends on two circumstances: the type of IRA account you have, and your marital situation.

Roth vs. traditional IRA

If you have a Roth IRA, you are not required to take any distributions from the plan, so you can liquidate it as you see fit. However, if you have a traditional IRA, you must take an annual RMD beginning on April 1 following the year in which you reached age 70 1/2.

Life expectancy and RMDs

Once you reach that point, the amount of your RMDs will be based on life expectancy tables the IRS uses to estimate your remaining lifespan. Because that lifespan gets shorter the longer you live, as time goes on, you will be withdrawing progressively larger portions of your IRA. However, since the IRA will most likely have become drawn down in size over time, this will somewhat smooth out the size of the distributions.

To use one specific comparison from the life expectancy table as an example, when you are 70, your estimated remaining lifespan is 27.4 years, so the amount you are required to withdraw from the IRA is 1 divided by 27.4 times the market value of your IRA. By the time you are 90, your estimated remaining lifespan is 11.4 years so the RMD would be 1 divided by 11.4 times the market value of your IRA.

Marital status and RMDs

If you have a spouse that is the sole beneficiary of your IRA and is more than 10 years younger than you, the IRS uses a different table that effectively blends the life expectancy of you and your spouse in figuring out the size of RMDs. This slows down the pace of those RMDs.

Withdrawal schedule for retirement savings

The reason there is no point at which you have to fully liquidate your IRA is that the shortest remaining lifespan the IRS uses in its assumptions is 1.9 years. This means that the most you ever have to withdraw from the IRA is 1 divided by 1.9, or just over half the remaining total.

At some point though, you may find the IRA has been drawn down so far it is not worth keeping open. And, of course, once you reach age 59 1/2, you have the option of drawing the IRA down at a faster pace than the RMD schedule.

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