RMD Math for Retirement Plans
Based on current IRS life expectancy tables, the 2013 RMD from most retirement plans is based on the account owner’s age as of their 2013 birthday and account balance as of December 31, 2012.
These IRS tables change infrequently. The only retirement plans not covered by these tables are 401(k) plan participants who are still working, Roth IRA owners. These same tables cover retired Roth 401(k) owners but their withdrawals are almost always tax free.
Similar calculations can be used year-after-year, as shown in the table below. The table below is what most retirement plan owners will use since it used by unmarried individuals and married owners whose spouses are no more than 10 years younger.
|
Age |
RMD Period (years) |
RMD as % of balance |
|
70 ½ |
27.4 |
3.6% |
|
71 |
26.5 |
3.8% |
|
72 |
25.6 |
3.9% |
|
73 |
24.7 |
4.0% |
|
74 |
23.8 |
4.2% |
|
75 |
22.9 |
4.4% |
|
80 |
18.7 |
5.3% |
|
85 |
14.8 |
6.8% |
|
90 |
11.4 |
8.8% |
For example, Art turned 70 ½ in 2013 and his traditional IRA was worth $100,000 as of December 31, 2012. Art must take out at least $3,600 for 2013 (note: he can postpone this one withdrawal until April 1, 2014). For 2014, Art must withdraw at least 3.8% of his traditional IRA valued as of December 31, 2013. The withdrawal must be done before December 31, 2014. For 2015, the RMD must be at least 3.9% of the account value as of December 31, 2014.
How You Will Know
Most traditional IRA custodians notify their customers in January as to the minimum amount (the RMD) that must be withdrawn by December 31.
If You Have Multiple Accounts
With the exception of 401(k) accounts, if you have multiple retirement accounts, simply add up all account balances (as of December 31) of the same type of account and divide by the appropriate factor.For example, Betty has 5 different traditional IRA accounts. On December 31 of last year, the 5 accounts totaled $880,000. Since Betty will celebrate her 90th birthday this year, she must take out at least $77,440 (8.8%) for the year. If Betty also has a pension plan, she will need to make a separate computation and take out at least 8.8% from that account.
As mentioned above, if you have multiple 401(k) accounts, you must make a separate withdrawal for each 401(k) account. A way to avoid this is transfer your 401(k) accounts into a single IRA rollover. If you are still working and are covered by a 401(k), you can avoid RMDs on older 401(k) plans by rolling their balances into your current 401(k).