What are Minimum Distributions and How are They Calculated?

what are minimum distributions

Submitted by Kevin Hanna−

Answer:

Required minimum distributions are the amounts that you must withdraw each year from your traditional IRA, employer-sponsored retirement plan, or tax-sheltered annuity. You must begin to take the annual distributions by April 1 of the year following the year in which you reach age 70½. This is known as your required beginning date. If you work for your employer past age 70½ and are still participating in the employer’s retirement plan, you may postpone your first distribution from that plan until April 1 of the year following the year of your retirement (as long as you are not more than a 5 percent owner of the employer).

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Regardless of your required beginning date, you must take subsequent distributions by December 31 of each calendar year. You’ll continue to take the annual distributions each year until your death or until your account balance is reduced to zero. You can always withdraw more than the required minimum amount in any given year. However, if you withdraw less, you will be subject to a 50 percent federal penalty on the difference between the amount you should have taken and what you actually took.

The basic calculation for individual accounts provides that the required minimum distribution is determined by dividing the account balance by the distribution period. For lifetime required minimum distributions, there is a uniform distribution period for almost all individuals of the same age.

The uniform lifetime distribution period table is based on the joint life and last survivor life expectancy of you and a hypothetical beneficiary 10 years younger. However, if your sole beneficiary is your spouse and he or she is more than 10 years younger than you, a longer distribution period measured by the joint life and last survivor life expectancy of you and your spouse is permitted to be used.

However, the specific rules on required minimum distribution calculations are complicated, and you should consult a tax professional regarding your situation.

 

John Strassman, CFP and Kevin Hanna met at a major brokerage firm. After working together for several years they discovered they both had the same compelling desire to have a business that was based on really knowing and understanding their client’s goals, aspirations, concerns and motivations. John and Kevin soon realized that was not going to happen where they were, so they launched Strassman & Hanna. With over 40 years combined experience they are committed to superior customer service based on a foundation of sound financial advice and guidance, great personal service and an extensive array of services. For more information, visit www.yourlegacymatters.com. Connect with John and Kevin on LinkedIn and Facebook.

Investing involves risk, including loss of principal. Securities through LPL Financial, Member FINRA/SIPC. Financial Planning and Investment Advice is offered through Financial Advocates Investment Management, a Registered Investment Advisor, DBA Strassman and Hanna Wealth Management and a separate entity from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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What are Minimum Distributions and How are They Calculated?
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