The IRS let you put money into an IRA and defer taxes all through your career and even well into your retirement if you retire before age 70. But this situation doesn’t last forever with traditional IRAs. Eventually, you have to take out at least minimum amounts, known as required minimum distributions, or RMDs, from your account once you reach age 70½.
Technically, that means the IRA money must start being withdrawn in specific increments no later than April 1 following the year you reach that age.
The exact distribution amount changes from year to year. It is calculated by dividing an account’s year-end value by the distribution period determined by the IRS.
The table shown below is the Uniform Lifetime Table, the most commonly used of three life-expectancy charts that help retirement account holders figure mandatory distributions. The other tables are for beneficiaries of retirement funds and account holders who have much younger spouses.
Joe Retiree, who is 80, a widower and whose IRA was worth $100,000 at the end of last year, would use the Uniform Lifetime Table. It indicates a distribution period of 18.7 years for an 80-year-old. Therefore, Joe must take out at least $5,348 this year ($100,000 divided by 18.7).
To calculate the year’s minimum distribution amount, take the age of the retiree on Dec. 31 of that year and find the corresponding distribution period. Then divide the value of the IRA by the distribution period to find the required minimum distribution.
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