How Do I Compute a Minimum IRA Distribution?

Good things can't last forever -- including the tax-sheltered growth of your traditional individual retirement accounts. Beginning in the year you turn 70 1/2 years old, you must start taking minimum required distributions. Roth IRAs, on the other hand, don't require minimum distributions as long the original account owner is alive. If you don't take out the minimum amount, the Internal Revenue Service charges you a tax penalty equal to 50 percent of what you should have withdrawn. For example, say you were supposed to take out $20,000. If you only take out $15,000, the IRS charges a 50 percent penalty, or $2,500, on the $5,000 you didn't take out.

Figure your life expectancy using your age at the end of the previous year and the life expectancy tables at the end of IRS Publication 590. Usually you use Table III, the Uniform Lifetime table. But if your spouse is at least 10 years younger than you, use Table II, the Joint Life and Last Survivor Expectancy table. For the Uniform Lifetime table, simply find your age in the left column and your life expectancy is in the right column. For the Joint Life and Last Survivor Table, find your age in the right hand column and your spouse's age in the first row across the top. You can find your life expectancy where that column and row intersect.

Check your financial records to find the value of your IRA at the close of the previous year. This value is used in figuring your minimum IRA distribution.

Divide the value of your IRA at the close of the previous year by your life expectancy to find your minimum IRA distribution. For example, say your life expectancy is 24 years and your IRA was worth $480,000 at the end of the prior year. Divide $480,000 by 24 years to find you need to withdraw at least $20,000.