Calculating Required Minimum Distributions (RMDs)

While an IRA is an excellent vehicle to help you prepare for your income needs during your retirement years, it’s important to remember that you cannot keep funds in a traditional IRA indefinitely.

IRS regulations require an IRA owner who attains age 70½ or older during a calendar year to take a Required Minimum Distribution (RMD) from his IRA on an annual basis. This rule applies to owners of Traditional IRAs, SEP plans, and SIMPLE IRAs, but it does not affect those who have saved with a Roth IRA.

Meeting Required Minimum Distributions is ultimately the responsibility of the account owner. Failing to comply carries stiff penalties (50% on the amount that is not withdrawn).

Required Minimum Distributions are determined based on a number of factors: the IRA account balance (or combined balances, if more than one IRA account is held) on Dec. 31 of the previous year; the account owner’s age, and an applicable factor, which is available on a Life Expectancy Table through the IRS website.

For inherited IRA accounts, calculating the RMD gets a little trickier. Distributions are affected by two factors. Distributions are based on whether the original IRA owner had reached his or her Required Beginning Date and begun taking RMDs and by the beneficiary’s relationship to the owner. Spousal beneficiaries are treated differently than a non-spouse.

Calculating your RMD can be challenging and it is important that you understand all of the factors at play. If you are unsure of how to figure out your RMDs, give us a call. Our representatives would be happy to help you.