Getting older has its drawbacks, even in terms of your retirement savings. Starting in the year that you reach the age of 70 1/2, the Internal Revenue Service (IRS) requires that you start removing money from your tax-deferred IRAs. Not only can you not leave the money in the account to continue to benefit from tax-sheltered growth, you must include the distributions as part of your taxable income. If you do not distribute the minimum required amount that year, and each subsequent year, the IRS charges a 50 percent penalty.
1. Compare your age to the age of your spouse, if your spouse is your sole beneficiary. If your spouse is more than 10 years younger than you, you can use the Joint and Last Survivor Table rather than the Uniform Lifetime Table.
2. Find your life expectancy by using the appropriate table in the Appendix of IRS Publication 590. If you use the Uniform Lifetime Table, your life expectancy is listed just to the right of your age. For example, if you will be 79 at the end of the year, your life expectancy equals 19.5 years. If you use the Joint and Last Survivor Table, your life expectancy is listed where the row for your age and the column of your spouse's age meet.
3. Call your bank to find the value of your IRA as of December 31 of the previous year if you do not have the value in your records. No matter how much your IRA changes in value during the year, your required minimum distribution still uses the December 31st value.
4. Divide your account value by your life expectancy to find the RMD for your IRA. For example, if your life expectancy equals 19.5 years and your account is valued at $400,000, divide $400,000 by 19.5 to get an RMD of $20,512.82.
Items you will need
- IRS Publication 590
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