The Formula for Calculating an IRA and RMD

by Cam Merritt

While investors are often cautioned against taking early withdrawals from their individual retirement accounts (IRAs), it's important to keep in mind that you can't keep it in there forever either. Once you reach age 70 1/2, the Internal Revenue Service makes you withdraw a certain amount every year, known as required minimum distributions (RMDs). Although the custodian of your IRA should be able to calculate this amount for you, it helps to know that it's based primarily on your account balance and your age.

Account Balance

The formula for calculating your RMD starts with how much money you have in the IRA. When determining your RMD for a given year, the figure to use is the IRA balance as of December 31 of the preceding year. You can find this on your year-end statement, or call your IRA custodian.

Life Expectancy

To get your RMD, you must divide your IRA balance by a life expectancy factor determined by your age, and the decisions you've made about who will be the beneficiary of your account. The IRS publishes three separate tables of life expectancy factors in Publication 590 titled "Individual Retirement Arrangements."


Use the "Joint Life and Last Survivor Expectancy" table in Publication 590 if your spouse is the sole beneficiary of your IRA, and is more than 10 years younger than you. Both conditions must apply to use this table. If you're unmarried, or if your spouse is not more than 10 years younger than you, or if you are married but your spouse is not your sole beneficiary, use the "Uniform Lifetime" table. The third table, "Single Life Expectancy," is only for beneficiaries. When beneficiaries inherit an IRA, they generally have to start taking RMDs regardless of their age.

The Formula

Assume, for example, you are 75 years old and you had $250,000 in your IRA as of last December 31. If your spouse is 63 years old and is your sole beneficiary, then you can use the "Joint Life and Last Survivor Expectancy" table. As of 2011, the life expectancy factor for a 75-year-old with a 63-year-old spouse is 24.3. Divide $250,000 by 24.3, and you get a RMD of $10,288. If you are single or married but didn't qualify to use the joint table, look up your factor on the uniform table. As of 2011, your factor was 22.9, and your RMD would be $10,917.

Taking the Distribution

You have until the end of the calendar year to take your RMD, except for the year you turn 70 1/2 when you have until the following April 1. If you don't take your RMD, or if you take less than you're supposed to, the penalty is a steep 50 percent tax on the amount you fell short.