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Understanding Required Minimum Distributions (RMDs)

Understanding Required Minimum Distributions (RMDs)

Required minimum distributions (RMDs) are the minimum amount of money that must be withdrawn from certain types of retirement accounts each year, beginning at a certain age. RMDs are required by the Internal Revenue Service (IRS) to ensure that taxpayers do not leave their retirement savings in these accounts indefinitely and to encourage them to use their retirement savings to meet their current financial needs.


The following types of retirement accounts are subject to RMDs:


  • Traditional individual retirement accounts (IRAs)
  • 401(k) plans
  • 403(b) plans
  • most other defined contribution plans
  • certain annuities


RMDs are generally required beginning in the year that a taxpayer reaches age 72 (70½ if the taxpayer was born before July 1, 1949). However, if the taxpayer is still working and does not own more than 5% of the business they work for, they may be able to delay taking their RMDs until April 1 of the year after they retire.


The amount of the RMD is determined by dividing the value of the retirement account by the taxpayer's life expectancy, as determined by the IRS. The value of the account is generally calculated based on the value of the account as of December 31 of the previous year. The life expectancy factor is based on the taxpayer's age and is determined using the Uniform Lifetime Table, which is published by the IRS.


It's important to note that failure to take the required minimum distribution can result in a penalty equal to 50% of the amount that should have been withdrawn but wasn't. It's a good idea to consult with a tax professional or refer to IRS guidelines to ensure that you are taking the correct amount of RMDs from your retirement accounts.




To calculate the required minimum distribution (RMD) from a retirement account, you will need to determine the value of the account as of December 31 of the previous year and your life expectancy factor, which is determined using the Uniform Lifetime Table published by the Internal Revenue Service (IRS).

Here's the formula for calculating the RMD:


RMD = (Value of account as of December 31 of the previous year) / (Life expectancy factor)


For example, let's say that the value of your retirement account as of December 31, 2021, is $100,000 and you are 75 years old. According to the Uniform Lifetime Table, your life expectancy factor is 22.9. Based on this information, your RMD would be:


RMD = ($100,000) / (22.9) = $4,352.41


It's important to note that the RMD must be taken by December 31 of each year. If you have multiple retirement accounts, you must calculate the RMD for each account separately, but you can withdraw the total amount from one account or a combination of accounts.


It's a good idea to consult with a tax professional or refer to IRS guidelines to ensure that you are calculating your RMD correctly and taking the correct amount from your retirement accounts. Failure to take the required minimum distribution can result in a penalty equal to 50% of the amount that should have been withdrawn but wasn't.

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