New York - The amount of a Minimum Required Distribution (MRD) from a retirement account is based on the account balance and the account owner's life expectancy. The MRD is calculated using a life expectancy factor that is published by the Internal Revenue Service (IRS) in a table called the "Uniform Lifetime Table" which is published by the IRS in Publication 939.
To calculate the MRD, you need to determine the account balance as of December 31 of the previous year. This is the account balance that will be used to calculate the MRD for the current year.
Next, find the appropriate life expectancy factor from the Uniform Lifetime Table (see IRS publication 939).
The life expectancy factor is based on the account owner's age as of their birthday in the year for which the MRD is being calculated. For example, if you are calculating the MRD for the year 2022 and you will be 73 years old on your birthday in 2022, you would use the life expectancy factor for age 73.
To calculate the MRD, divide the account balance by the life expectancy factor.
If the account balance is $100,000 and the life expectancy factor is 20, the MRD would be $5,000 ($100,000 / 20 = $5,000).
This is just a basic overview of how MRDs are calculated. There are additional rules and factors that may affect the calculation of MRDs, such as the account owner's marital status and whether the account is a traditional IRA or a 401(k) plan.
You should carefully review the rules and consult with a FEE-ONLY financial adviser if you have questions about calculating MRDs
Founded in 1998, The Independent Adviser Corporation has assisted thousands of individuals, families, and businesses. We are 100% independent and objective and offer free private consultations to our clients. Our company publishes free investment research and educational materials, and when specific financial or legal advice is needed, we connect clients with a network of FEE-ONLY professionals. For more information, become a member or to schedule a free consultation, please visit our website at TheAdviser.com or 1800ADVISER.COM.