Calculator for Required Minimum Distribution
Required Minimum Distribution calculator can be used to calculate the minimum amount that can be withdrawn from a tax-deferred retirement plan when a certain age is reached as per the applicable rules.
Required Minimum Distribution Calculator
B / F
- 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
About the Required Minimum Distribution Calculator
The formula and steps for calculating Required Minimum Distribution are per below:
Wherein,
- B is the Account balance held as of the last reported date.
- F is the factor to be used per life expectancy factor as defined by the authority.
Required Minimum Distributions are used to calculate the amount for many types of retirement plans wherein the person reaches the defined age and shall become eligible to withdraw a minimum amount that would be based upon the factor which is again dependent upon the age, and that factor is also called as 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.
RMD applies to many different retirement plans such as traditional IRA, SIMPLE IRA, 401(k) and 403(b) plans, etc.
How to Calculate Using the Required Minimum Distribution Calculator?
One needs to follow the below steps in order to calculate the amount of Required Minimum Distribution.
Step #1 – One needs to locate the age on the IRS table, which is given above (uniform life table).
Step #2 – Secondly, find out the life expectancy factor which corresponds to the age in question.
Step #3 – Figure out the retirement account balance as of the end of the last reported year, which is mostly 31st Dec in IRS plans.
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Step #4 – Now divide the figure derived in step 4 by the life expectancy factor that was determined in step 2.
Step #5 – The resultant figure in step 4 will be the minimum amount that is withdrawn from the IRS account and is the required minimum distribution amount.
Example #1
Mr. X, who was living happily in Newark city. He has worked for around 60 years in a multinational company and is nearing the age of retirement. He has been contributing to the IRA account for the past 30 years. Yearly he has been depositing around $3,000 in the account, and he also 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 financial expenses, which is due during that age. But he is unsure of the rules and regulations and the tax effect of same and doesn’t know what to do to withdraw from that account; and therefore, he approaches Mr. Y, who is a tax and legal advisor, and he helps him in calculating the minimum amount that can be withdrawn from that plan.
Based on the given information, you are required to calculate the required minimum distribution.
Solution:
Mr. X wants to withdraw the amount from the IRA account, but before that, we need to calculate the account balance he is having 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 discuss, the factor applicable is 25.6
Now, we can use the below formula.
- = $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, both aging 77 years, have been living in states for around 25 years while they migrated from India. They have been planning for their retirement, and one of them is a deposit in an IRA plan where both have done 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.
The IRA plan, as of last December, had $250,567.89 in it. Based on the given information, you are required to calculate the minimum distribution amount that can be withdrawn and determine whether it meets their funding requirement.
Solution:
We are given the account balance as $250,567.89
Now the family would like to withdraw a certain amount at the age of 78.
We shall now determine the life expectancy factor, which is based on age which is 78, and from the above IRS table discuss, the factor applicable is 20.30
Now, we can use the below formula to calculate the Required Minimum Distribution
- = $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.
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 IRA plans. This was just a simple example of calculating the amount; there are many different scenarios wherein beneficiaries are involved, such as a spouse, and more such complexities are involved, which can be discussed later on.
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