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Tax law requires individual retirement account holders to begin taking out at least minimum amounts, known as required minimum distributions, or RMDs, from their accounts once they reach age 70½. Technically, that means the IRA money must start coming out in specific increments no later than April 1 following the year you reach that age.
The exact distribution amount changes from year to year. It is calculated by dividing an account’s year-end value by the distribution period determined by the Internal Revenue Service.
Several years ago, the IRS revised distribution rules and the various life expectancy tables used to make the RMD calculations. The reformulation means that taxpayers now have to take out less. This is welcome news to retirees who have enough income from other sources and who want to withdraw as little as possible from their IRAs, letting the accounts grow in value for longer.
The table shown below is the Uniform Lifetime Table, the most commonly used of three life-expectancy charts that help retirement account holders figure mandatory distributions. The other tables are for beneficiaries of retirement funds and account holders who have much younger spouses.
Joe Retiree, who is 80, a widower and whose IRA was worth $100,000 at the end of last year, would use the Uniform Lifetime Table. It indicates a distribution period of 18.7 years for an 80-year-old. Therefore, Joe must take out at least $5,348 this year ($100,000 divided by 18.7).
To calculate the year’s minimum distribution amount, take the age of the retiree on Dec. 31 of that year and find the corresponding distribution period. Then divide the value of the IRA by the distribution period to find the required minimum distribution.
Required minimum distributions for IRAs
|Age of retiree||Distribution period (in years)||Age of retiree||Distribution period (in years)|
|92||10.2||115 or older||1.9|