RMD calculations are a simple process once you have obtained the necessary information from the IRS.
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Retirement accounts such as 401(k), 403(b), and traditional IRAs are subject to repeated tax rules. This means you will receive tax promotion (the ability to deduct contributions from taxable income), but ultimately you will have to pay taxes for withdrawal.
To avoid situations where someone skips a withdrawal completely to avoid tax liability, the IRS imposes a minimum distribution (RMD) that must be kicked when they turn 73. Knowing the process behind RMD is necessary to avoid expensive penalties.
How do you determine the minimum distribution you need?
RMD is based on two important factors. Total retirement account amount at the end of the previous year and The age you change this year. For example, if you are currently 75 years old and turn 76 this year, the age at which 76 will be used. Once you have these two pieces of information, grasping your RMD is a simple two-step process.
- Look at the IRS life expectancy table provided for your life expectancy factor (LEF). Uniform Lifetime Table This applies to most retirees. If your spouse is yours The only beneficiaries, they are over ten years younger than you, you are Joint life expectancy table.
- Split your account balance with LEF at the end of the previous year.
Assuming you had $500,000 in your account at the end of 2024, the RMD below is for those aged 73-80 (official charts will be over 120).
Calculations by the author. The RMD is rounded to the nearest dollar.
If you do not take RMD, you may experience a penalty equal to 25% of the amount that is due to be withdrawn. However, if you correct your mistake and get your RMD within two years of the deadline, you can reduce your penalty to 10%.
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