How to calculate your Minimum Required Distribution if you’re an IRA owner
By Shane Flait © 2008

An IRA owner is the person who contributed to his IRA. You must take a minimum required distribution (MRD) from your traditional IRA or non-deductible each year.  These 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.

Here, we’ll address the MRD[1] rules for IRA owners only – not beneficiary owners which have slightly different rules.  Since IRAs you were given a tax- break to contribute to your IRA for your retirement, the government expects you to withdraw some for your retirement and be taxed!

Penalty for taking less that the MRD:
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 what you 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 70½. But, you get a slight break for that year – and only that year. If you don’t want to take it by the end (Dec. 31) of that year, you must take it by April 17 of the next year. Not much of a break!

How often must I take my MRD?
You must take every other MRD by Dec. 31 of every year following the year you turn 70½. 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 MRDs?
The MRD for the year in question 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 for the year in question.  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 fact, you’ll use Table III (called Uniform Life Time) in all cases accept for one! That one 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. Only in that somewhat exceptional case, will you use table II (called Joint Life and Survivor Expectancy) since it gives slightly higher expectancy factor at each age for you and your spouse – and depending on your spouse’s age.

To see the effect for this exceptional case, the table below compares the life expectancy factors for the usual case (table III when your spouse’s age is within 10 years of yours) and the exceptional cases – specifically when your spouse is 11 years younger than you and 21 years younger than you.  The table compares them when you’re 71 and then again when you’re 81.

 

Table II of IRS Pub 590 of Appendix C
You (age)	Spouse is 11 or 21 years younger (age)	Table II  with spouse >10years younger Age (life expectancy factor)	Table III Spouse <10years younger or not married (life expectancy factor)
71	60	27.2	26.5
71	50	35.1	26.5
81	70	18.5	17.9
81	60	25.8	17.9

 

Not a big difference unless your spouse is much more than 10 years younger! Remember, the larger is the life expectancy factor, the lower will be your MRD.

 

Shane Flait is a writer and educator. See more at www.EasyRetirementKnowHow.com

 

 

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