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How to Calculate Your Minimum Required Distribution If You Own an IRA

By Shane Flait

Republish: EasyPublish™ Published: 26Jun2009 Word count: 581 Viewed: 398 time(s) Get Free Content For Your Site

An IRA owner is the person who started and contributed to his IRA. As an owner, you must take a minimum required distribution (MRD) from your traditional IRA or non-deductible each year after reaching 70 1/2. This article explains the MRD rules for IRA owners only - not for beneficiary owners who have slightly different rules.

MRD rules also apply to owners of simplified employee pension (SEP) accounts as well as SIMPLE IRAs, since they're both considered IRAs for this purpose.

Since you contributed to your IRA with tax-deductible contributions from working income, none of the money in your IRA has been taxed. But the government expects you to at least withdraw some of your money for your retirement. And doing so will allow the government to get some of its tax back from you! So, here are how the rules on MRDs work:

Penalty for taking less than the MRD amount?

You can take more than the MRD each year without a penalty. But the amount you take in excess of the MRD in one year cannot be used to take less than the MRD amount in any other year. But if you take less than the MRD, you are penalized by an amount equal to 50% of that part of your MRD you didn't take and must also pay income tax on that too.

When must I begin my MRD?

You must begin your MRD withdrawals in the year you turn 701/2. But, you get a slight break for that year - and only that year. If you don't want to take it by that year's end (Dec. 31), then you must take it by April 17 of the next year. So, it's not much of a break!

How often must I take my MRD?

You must take all other MRDs by Dec. 31 of every year following the year you turn 701/2. If you delayed your first MRD to April 17, you still need to take your second MRD by Dec. 31! That'd be two MRDs in the same year. And that will increase your income (and its tax) by two MRDs for that year.

What amount corresponds to my MRD?

The MRD for a specific year is the value of your IRA (or total of all your IRAs if you have more than one) as of Dec. 31 of the previous year, divided by your life expectancy factor (from IRA table) for that specific year. So, each year your MRD will change since the value of your IRA will change and your life expectancy will change. So a new calculation must be done each year.

How do I find the life expectancy factor?

The life expectancy factors are found in Appendix C of IRS publication 590. You'll use either Appendix C's table II or table III. In the majority of cases, you'll use Table III (called Uniform Life Time). You can read off the remaining life expectancy (called your life expectancy factor) associated with your age.

The only circumstance you'll use Table II (called Joint Life and Survivor Expectancy) is if you're married AND your wife (spouse) is your sole beneficiary of your IRA AND she (or he) is more than 10 years younger than you.

In this case, Table II gives a slightly higher expectancy factor at each age for you and your spouse - and depending on your spouse's age - so your MRD will be a little less, and, therefore, last longer. There's really not a big difference unless your spouse is much more than 10 years younger!

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