Easy Ways to Calculate Required Minimum Distributions

I turned 70½ last year, and I have to take my first required minimum distributions from my IRA and 401(k) by April 1. How do I calculate how much I need to take, and what do I need to do?

Welcome to the world of RMDs! From now on, you’ll need to withdraw at least a certain amount of money from your traditional IRAs and 401(k)s by December 31 of each year. And, as you’ve mentioned, you have some extra time to make that very first withdrawal -- until April 1 of the year after the year you turned age 70½. If you’re still working at age 70½, you don’t need to take withdrawals from your current employer’s 401(k) until you retire.

The required withdrawal is based on your account balance at the end of the previous year, divided by an IRS life expectancy figure. You can find a list of these life expectancy figures in Appendix C of IRS Publication 590 (use Table 3, the Uniform Lifetime Table, unless your sole beneficiary is a spouse who is more than ten years younger than you, in which case, use Table 2). Since you’ll actually be making your 2011 withdrawal by April 1 of this year, the required amount will be based on your traditional IRA or 401(k) balances as of December 31, 2010.

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If you have multiple IRAs, you’re supposed to figure the RMD from each one separately but you don’t have to take a withdrawal from each account. You can take the required amount from any IRA or combination of IRAs. In most cases, you can simply add the balance of all of your traditional IRAs as of December 31, 2010, and divide that number by your life expectancy factor to find the required distribution. But, if your husband or wife is more than ten years younger than you and the sole beneficiary of one, but not all, of your IRAs, you’ll need to use different life expectancy factors for different accounts. Again, once you know the total that needs to come out of your IRAs, it’s up to you which ones to tap. For 401(k)s, you must calculate the distribution -- and withdraw the money -- separately from each account.

Rather than go it alone, you could ask your IRA or 401(k) administrator to help you with the calculations and the process. Vanguard, for example, offers a free required-minimum-distribution service that can calculate the amount customers need to withdraw from their accounts and can also automatically distribute their assets however they want -- say, into a non-retirement account at Vanguard or a bank account or as a check.

Keep in mind that because this is your first RMD, it’s the only time you have until April 1 of the following year to make the withdrawals. After that, you need to make your RMDs by December 31 of every year. That means you’ll need to take a second withdrawal this year, by December 31, 2012, based on the balance in your account on December 31, 2011. It's easy to figure out your 2012 distribution with our RMD calculator.