Required Minimum Distribution Calculator

Article byHarsh Katara
Edited byAnkush Jain
Reviewed byDheeraj Vaidya, CFA, FRM

Calculator for Required Minimum Distribution

The required Minimum Distribution calculator can calculate the minimum amount withdrawn from a tax-deferred retirement plan when a certain age is reached per the applicable rules.

Required Minimum Distribution Calculator

B / F


Wherein,
  • B is the Account balance held as of last reported date
  • F is the factor to be used per life expectancy factor as defined by the authority
Account balance
$
factor to be used
$

About the Required Minimum Distribution Calculator

The formula and steps for calculating Required Minimum Distribution are below:

Required Minimum Distribution = B / F

Wherein,

Required Minimum Distributions are used to calculate the amount for many retirement plans wherein the person reaches the defined age and shall become eligible to withdraw a minimum amount based upon the factor dependent upon the age. That factor is also called life expectancy.

Here, we shall discuss the calculation in terms of IRS forms. Below is the life expectancy factor that we shall use in our examples.

IRS Uniform Lifetime Table

RMD applies to many different retirement plans such as traditional IRATraditional IRAA traditional IRA stands for an Individual Retirement Account that works to help individuals save taxes and grow their income for retirement plans. They are preferred due to certain tax benefits allowed on the investments made with the funds in the account.read more, SIMPLE IRA, 401(k) and 403(b) plans, etc.

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How to Calculate using the Required Minimum Distribution Calculator?

One needs to follow the steps below to calculate the required minimum distribution amount.

  1. One needs to locate the age on the IRS table, which is given above (uniform life table).

  2. Secondly, find the life expectancy factor corresponding to the age in question.

  3. Figure out the retirement account balance at the end of the last reported year, which is mostly 31st Dec in IRS plans.

  4. Now divide the figure derived in step 4 by the life expectancy factor determined in step 2.

  5. The resultant figure in step 4 will be the minimum amount withdrawn from the IRS account and the required minimum distribution amount.

You can download this Required Minimum Distribution Calculator Excel Template here – Required Minimum Distribution Calculator Excel Template

Examples

Example #1

Mr. X, who was living happily in Newark city. He has worked for around 60 years in a multinational companyMultinational CompanyA multinational company (MNC) is defined as a business entity that operates in its country of origin and also has a branch abroad. The headquarter usually remains in one country, controlling and coordinating all the international branches. read more and is nearing retirement age. He has been contributing to the IRA account for the past 30 years. He has been depositing around $3,000 in the account and has earned interest to the tune of $90,000 till now.

Mr. X feels that when he reaches age 72, he would like to withdraw a certain amount to take care of the financial expenses due during that age. But he is unsure of the rules and regulations and the tax effect of the same and doesn’t know what to do to withdraw from that account. Therefore, he approaches Mr. Y, a tax and legal advisor, and he helps him calculate the minimum amount that can be withdrawn from that plan.

You are required to calculate the minimum distribution based on the given information.

Solution:

Mr. X wants to withdraw the amount from the IRA account, but before that, we need to calculate the account balance he has in that account.

He was depositing $3,000 every year till the age of 60, which is $3,000 x 60, which is $180,000, and the interest earned in that account is $90,000. Therefore, the total balance in that account will be $180,000 + $90,000 which equals to $270,000.

Now the age at which Mr. X wants to withdraw the amount is 72.

We shall now determine the life expectancy factor, which is based on age which is 72, and from the above IRS table discussed, the factor applicable is 25.6

Sr NoParticularsValue
1Per Year Deposition$3,000
2No of Working Years60
3Interest Earned$90,000
4Account Balance$270,000
5Factor25.6
6Age72

Now, we can use the below formula.

Required Minimum Distribution = B / F
Required Minimum Distribution Example 1-1
  • = $270,000 / 25.6
  • = $10,546.88

Therefore, Mr. X would be able to withdraw $10,546.88 at the age of 72.

Example #2

Mr. and Mrs. Singh, aged 77 years, have lived in the states for around 25 years while migrating from India. They have been planning their retirement, one of which is a deposit in an IRA plan where both have made the contributions. Mr. and Mrs. Singh will be required to withdraw $15,000 when they both reach 78 since the education fees of their daughter is due.

As of last December, the IRA plan had $250,567.89 in it. Based on the given information, you must calculate the minimum distribution amount that can be withdrawn and determine whether it meets their funding requirement.

Solution:

We are given an account balance as $250,567.89

Now the family would like to withdraw a certain amount at age 78.

We shall now determine the life expectancy factor, which is based on age which is 78, and from the above IRS table discussed, the factor applicable is 20.30

Sr NoParticularsValue
1Account Balance$250,567.89
2Factor20.3
3Age78

Now, we can use the below formula to calculate the Required Minimum Distribution

Required Minimum Distribution = B / F
Required Minimum Distribution Example 2-1
  • = $250,567.89 / 20.3
  • = $12,343.25

Therefore, the family would be able to withdraw $12,343.25 at the age of 78, and there would be a shortfall of $15,000 – $12,343.25, which is $2,656.75.

Required Minimum Distribution Example 2-2

Conclusion

This calculator, as discussed, can be used for calculating the required minimum distribution amount per rules and regulations determined by the authorities for the IRAIRA401(k) is a company-sponsored retirement savings plan in which employees can contribute a defined contribution. A Roth IRA is a type of retirement savings account in which a person contributes after-tax amount and then withdraws it tax-free.read more plans. This was just a simple example of calculating the amount; there are many different scenarios wherein beneficiaries, such as a spouse, and more such complexities are involved, which can be discussed later on.

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