Required minimum distributions
From Wikicpa
Up until age 70 1/2, you may decide whether or not to take distributions from your IRAs. After age 70 1/2, regulations governing IRAs require that each year you receive a certain minimum amount from your traditional IRA, SEP IRA or SIMPLE IRA. This required withdrawal is referred to as the Required minimum distributions or RMD. The minimum amount is calculated using a life expectancy factor and the current value of the IRA. You can satisfy your RMD from any IRA account that you may own.
- The required beginning date for your RMD is April 1 of the year following the year in which you become 70 1/2
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Determine your distribution
To determine your RMD, you must use the life expectany tables published by the Internal Revenue Service. The tables can be found in the appendices of publication 590 [1]. The two tables that apply to the IRA owner are the:
- Uniform Lifetime Table (used by most people)
- Joint Life Expectancy Table (used when a spouse beneficiary is more than 10 years younger than the primary owner and the spouse beneficiary is the sole beneficiary)
- Example
- This is the basic formula (using the Life Expectancy Table) for calculating the Required Minimum Disbribtion using the Internal Revenue Service life expectancy tables:
Roth IRAs
Roth IRAs are exempt from the Required Minimum Distribution during the account holders lifetime but nonspouse beneficiaries are required to receive annual payments from the Roth IRA. See IRA beneficiary elections for more information.
Post age 70 1/2 transfers or rollovers
If an account holder transfers or rolls over their IRA from one custodian to anther after age 70 1/2, it may be necessary to recalculate your RMD. The recalculation would be adjust your IRA's year-end value by the amount of any transfer or rollover that did not settle by the December 31 or the previous year.
Late or Insufficient RMD's
You may be subject to a penalty equal to 50% the difference to between what your actually withdrew and what should have been withdrawn. This rule also applies to Roth IRA beneficiaries that are required to receive annual payments.
Request your RMD
Contact your financal consultant or IRA custodian to request the necessary forms to start your RMD.
External links
FAQ's from the IRS [2]
IRS Publication 590 [3]
