Estimating Required Minimum Distributions
This calculator can help investors determine their potential required minimum distribution from a Traditional IRA to avoid tax penalties imposed by the Internal Revenue Service. The calculator requires as many as five inputs:
- The birth date of the Traditional IRA owner in the format of month, day, year
- The Traditional IRA’s prior year balance
- Whether or not there is more than beneficiary (response will be yes or no)
- Whether or not the sole beneficiary is the IRA owner’s spouse (response will be yes or no)
- If the sole beneficiary is a spouse, the calculator needs their birthday in the format of month, day, year
Using this information, the calculator then provides the user with the following:
- The life expectancy of the Traditional IRA owner
- The life expectancy factor used to calculate the required minimum distribution, or RMD
- The required minimum distribution
- The IRS table used to compute the life expectancy value
Note: This calculator provides information for educational purposes. The results are not intended to be used as tax advice and should not be viewed as such. The calculations are a result of input provided by the user, who needs to be certain of their accuracy. While Traditional IRAs are subject to required minimum distributions (RMD), Roth IRAs are not subject to RMDs. Always consult with a financial advisor or tax professional who can provide personalized guidance based on your unique situation. These professionals can calculate your RMD accurately while ensuring compliance with tax regulations outlined by the Internal Revenue Service.
What are Required Minimum Distributions?
Retirement plans such as Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, and 457(b) plans are subject to required minimum distributions, or RMDs. These are obligations to withdraw from these accounts each year when the owner reaches a certain age. The objective of RMDs is to force the owners of these assets to move them away from these tax deferred accounts and pay income taxes due. This is why enforcement falls under the authority of the Internal Revenue Service (IRS) in the United States. This is also why Roth IRAs and Roth 401(k) plans are not subject to RMDs.
The withdrawal calculation is based on the account balance at the end of the previous year and a life expectancy factor provided by the IRS. Depending on the account owner’s individual circumstances, the life expectancy factor comes from a Uniform Lifetime Table or a Joint Life and Last Survivor Expectancy Table. Under most conditions, the Uniform Lifetime Table is used except if the owner’s spouse is the sole beneficiary of the account and the spouse is more than ten years younger than the account owner. Under these circumstances, the life expectancy factors are taken from the Joint Life and Last Survivor Expectancy Table.
Interpreting the Results of Our Calculator
When creating any calculator, we always look at what other sites are doing and put in effort to make our calculators the best. In terms of RMD, we came to learn that all of Google’s top-ranking websites do a poor job in this area. There are some simple rules to follow that many sites ignore. Let’s take a closer look at how our calculator works.
The calculator needs the birth date (not year) of the user because if they are ten years or older than their spouse, and their spouse is the sole beneficiary of the owner’s account then the calculation is modified. If there are multiple beneficiaries, the Uniform Lifetime Table is used. This is why we also need to know the spouse’s birth date (not year).
The life expectancy value was updated by the IRS in 2022. The prior year’s account balance is divided by the Uniform Lifetime and Joint Life and Last Survivor Expectancy tables to determine the RMD. For example, if the prior year’s balance is 100,000 and the life expectancy factor was 26.5, then the RMD would be 100,000 / 26.5, or 3,773.58.