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Required Minimum Distributions (RMDs): You’ve made it to 70 ½, now what?

| November 24, 2015
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Required Minimum Distributions

If you’ve made it to 70 ½ years old without touching your retirement assets, congratulations! You’ve been able to defer taxes and are likely living proof of the power of compounded earnings.
But now it’s time to play by the rules of someone else’s game. Once you enter into the RMD phase of your financial life, there are a few important things to remember. This article will discuss how you determine the size of your distribution.

How big is my distribution?

The size of your distribution depends on the TOTAL value of tax-deferred assets that fall under the RMD rules. Tax-deferred assets are assets in which earnings, such as dividends, interest, and capital gains accumulate, generating no tax burden until the investor, you, takes possession, or withdraws, money from the account. Accounts which allow for tax-deferred growth include:

  • Traditional IRAs
  • SEP IRAs
  • SIMPLE IRAs
  • 401(k) plans
  • 403(b) plans
  • 457(b) plans
  • Profit sharing plans
  • Other defined contribution plans

How do I calculate my distribution?


This is a two-step process. 

  1. Assuming you are no longer working and contributing to an employer sponsored plan, determine the combined value of your tax-deferred assets, as of December 31 of the previous year. Gather all of your account statements and do the math.
  2. Calculate your required distribution amount. Find your Distribution Period as determined by the IRS (see chart below.) Then, divide your account balance, from step 1, by your Distribution Period. This is the amount you must distribute. 

As an example, Tom turned 70 on January 1, 2014. He turns 70 ½ on July 1, 2014. The IRS Rule states that Tom must take his RMD by April 1, 2015 (the year following the year in which Tom turned 70 ½.) Tom has an IRA (a tax-deferred asset) balance of $100,000 as of December 31, 2014. He is taking his first RMD, which is for age 70.

Jim’s distribution can be found by dividing his balance ($100,000) by his distribution period for age 70 (27.4): $100,000 / 27.4 = $3,650

Jim must remove $3,650.00 from his tax-deferred account and pay ordinary income taxes on the distribution.

Complicated? Try Hengehold Capital Management’s RMD EstimatorAlso, the account’s custodian, a financial institution that holds, and possibly manages, your funds, will be able to help determine how much needs to be taken from each account.

What if I have more than one tax-deferred plan?

It’s important to remember that the IRA RMD amount is based on the TOTAL value of your eligible accounts. In the example above, if Tom had 2 IRAs, each with a balance of $50,000 (instead of one IRA with a balance of $100,000), his required distribution would still be $3,650.

If you have more than one IRA, whether a Traditional IRA, SEP and/or SIMPLE IRA, you can add the RMDs and take the combined distribution amount from any one or more of your IRAs.

Remember – when in doubt, contact your plan administrator or a qualified retirement planning firm. The Cincinnati firm of Hengehold Capital Management provides wealth management and retirement planning services.

Content in this article is not intended to be financial advice. Instead, we think of it as educational, and financial education is important to us.

Next up, more in-depth information about taking your first distribution.

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