Older retirement account owners know that, in some cases, they can't leave their money untouched forever. When your retirement savings are in tax-deferred accounts, the Internal Revenue Service eventually demands that you take some money out so it can get its cut of your cash.
That year, you have to start taking out at least a portion of affected accounts, such as traditional IRAs or 401(k) workplace plans.
The exact distribution amount is based on your age and therefore changes from year to year. It's determined by dividing your affected accounts' year-end values by an age-based distribution period.
So what are those periods? The IRS has created three tables to help you figure out your annual RMD.
The most commonly used table is Uniform Lifetime Table. That's it reproduced below.
Required Minimum Distributions (RMDs)
for Certain Tax-Deferred Retirement Accounts
|Age of Retiree||Distribution Period (in years)||Age of Retiree||Distribution Period (in years)|
|92||10.2||115 or older||1.9|
Using the table above, 75-year-old Jane Retiree who has a traditional IRA worth $100,000 at the end of last year would have to take at least $4,367 — that's the result of her $100,000 IRA value divided by 22.9 — from her account.
If Jane doesn't take her RMD, she'll face a 50 percent tax penalty on the amount she should have withdrawn.
You can read more about the penalty and other RMD issues in the ol' blog's post 5 FAQs about RMDs.