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Millions of Americans now participate in qualified retirement plans such as a 403(b) or 457. Unfortunately,
many participants who have reached age 70 1/2 are unaware they are required to withdraw a certain
minimum amount from their retirement plan each year or face severe IRS penalties.
The IRS requires you to withdraw at least a minimum amount – known as a Required Minimum Distribution –
from your retirement account(s) annually, starting the year you turn age 70 1/2. Determining how much you are
required to withdraw is an important issue in retirement planning.
In order to calculate your RMD, you need to know the following information:
- Account Balance as of 12/31 of Year Prior to Distribution Year
This balance is the fair market value of your account as of the close of business on December 31 of the preceding year.
No adjustments are made for contributions or distributions after that date. Transfers or rollovers made prior to
that date must be taken into account. As of 2006, this value also includes "Actuarial Present Value" of additional
benefits such as death benefits or special riders.
- Distribution Period or Life Expectancy
These required minimum distributions are determined by dividing the prior year-end fair market value of the
retirement account by the applicable distribution period or life expectancy (using standard mortality tables).
- Age
Use your age as of 12/31 for the year you are calculating the distribution. If your birthday
is between January 1 and June 30, the first year of distribution would be at age 70. If your birthday
is between July 1 and December 31, the first year of distribution would be at age 71.
For more information, read FAQs regarding the Required Minimum Distributions, a helpful online
IRS reference that answers frequently asked questions about RMDs.
Consult your financial professional or product provider in order to properfly calculate your RMD.
This Web site is not intended or written to be used as
legal or tax advice. As a taxpayer, you cannot use it
for the purpose of avoiding penalties that may be imposed
under the tax laws. You should seek advice on legal or tax
questions based on your particular circumstances from an
independent attorney or tax advisor.
*Statistics compiled from the 2004 Retirement
Confidence Survey, Employee Benefit Research
Institute; and "Coming Up Short: The Challenge of 401(k) Plans," Alicia Munnell
and Annika Sunden
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