Understanding the IRA Minimum Distribution Table

Unfortunately, all good things must come to an end, including your individual retirement account (IRA). Once you hit 70.5 years of age, you must take an annual required minimum distribution (RMD). Keep reading to learn more about the RMD and how to use the required minimum distribution table.

The RMD Table Explained

The IRA minimum distribution chart is a tool that makes it easy to calculate the amount of an annual required distribution. One the left side of the chart is a column with different ages; on the right side of the chart, there’s a column of numbers that correspond to the numbers on the left side.

The numbers on the right side of the table are distribution period numbers. They’re calculated based on the remaining life expectancy for the numbers in the left column.

For example, if you look up 74 years of age on the left side of the chart, the corresponding number on the right side is 23.8.

Putting the Numbers from the RMD Chart Together

Once you’ve looked up your distribution period number, you can use it to calculate your required minimum distribution. Take the total balance of your IRA and divide it by your distribution period number to calculate your required minimum distribution, as reported by SmartAsset.

Assume that you have $500,000 in your IRA and have a distribution period number of 23.8. Once you divide $500,000 by 23.8, this yields a required minimum distribution of $21,008.40.

Your required minimum distribution varies. It’s based on your age and the balance in your IRA.

Consequences of Not Taking Your RMD

If you don’t take your RMD, expect to pay a tax equal to 50 percent of the amount not withdrawn, as stated by the IRS. For example, if you have an RMD of $5,000 and don’t take any money out of your IRA, you’ll pay a tax of $2,500.

The fee for not taking your RMD may seem steep, but it’s important to remember the ultimate purpose of an IRA. An IRA is a tax-advantaged account specifically intended to help the account owner save for retirement. Your contributions are tax-free, and you don’t pay taxes until you withdraw the money. RMDs ensure that your withdraw (and pay taxes on) some of the money.

Forgiveness for Not Taking an RMD

It’s possible to get the tax for not taking an RMD waived. However, you have to prove that you didn’t take the RMD due to an error or oversight. You must also be in the process of correcting your error.

For example, assume you forget to include the value of one of your IRAs when calculating your RMD. You can correct your error by including the value of this account, recalculating your RMD and withdrawing the additional funds.

The Exception to the RMD Chart

There’s one type of retirement account that the RMD chart doesn’t apply to: the Roth IRA. The Roth IRA is funded with post-tax dollars or money that you’ve already paid income taxes on. When you withdraw your money in retirement, the proceeds are free from income taxes. Since you already paid taxes on these funds, you’re free to leave your money in your Roth IRA as long as you want to.