Once you reach age 70 1/2, the tax rules require that you withdraw at least a minimum amount from your individual retirement accounts each year. The amount of the annual required minimum distribution -- RMD -- is based on the IRA's account value and your life expectancy factor as shown in one of the tables provided by the Internal Revenue Service.
IRS Publication 590
The definitive guide for IRAs, including information on required minimum distributions, is IRS Publication 590, Individual Retirement Arrangements. Publication 590 covers in detail how to calculate required minimum distributions. And its Appendix C provides the life-expectancy tables used to calculate RMDs. Publication 590 is available in pdf form from the IRS website. Some financial websites also publish the RMD life expectancy tables. But it might be best to use the official IRS version when calculating an actual required minimum distribution to withdraw from your IRA.
Uniform Lifetime Table
Most IRA owners should use the Uniform Lifetime Table to calculate IRA minimum distributions after 70 1/2. However, if the spouse of the IRA owner is the sole beneficiary and is more than 10 years younger than the IRA owner, RMDs are calculated using the Joint Life and Last Survivor Expectancy Table from Publication 590. The tables provide a life expectancy in years based on the IRA owner's age. For example, at 70, the life expectancy from the Uniform Lifetime table is 27.4 years. At 71 the factor is 26.5 years.
Calculating the RMD
The RMD calculation divides the IRA's value on Dec. 31 of the previous year by the life expectancy factor from the appropriate table for the IRA owner's age in the current year. The calculation starts with the year the IRA owner reaches the age of 70 1/2, and it's repeated each year. Because the life expectancy from the table gets shorter each year, the required minimum distribution percentage of the IRA account value increases each year.
RMD Withdrawal Dates
The first IRA required minimum distribution for the year the owner turns 70 1/2 must be withdrawn by April 1 the following year. For subsequent years, the RMD must be calculated and withdrawn from the IRA by Dec. 31. If there are multiple IRA accounts, an RMD can be calculated upon their total value, and the withdrawal can be taken from any of them.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.