IRA/401K Distribution

Several years ago, the IRS revised distribution rules and the various life expectancy tables used to make the RMD calculations. The reformulation means that taxpayers now have to take out less. This is welcome news to retirees who have enough income from other sources and who want to withdraw as little as possible from their IRAs, letting the accounts grow in value for a longer period. However we believe that this new change will be short lived. There is over 7.3 trillion dollars in retirement accounts that has never been taxed by the federal government, and since our national deficit is at a record high of 18 trillion dollars and growing.

The consensus if you ask most Americans they believe that taxes are going to rise in the near future to pay for our deficit problem. If you ask the retirement advising community it’s views on retirement funds as a way to pay our national debt, it believes that in the very near future not only will the RMD schedule will change (meaning age in which distribution starts) but possibly the distribution percentage table in which RMDS are calculated from. Instead of a lower percentage which means the government get’s less taxes a higher distribution could be required so that the requirement is higher, therefore higher taxes.

The table shown below is the Uniform Lifetime Table, the most commonly used of three life-expectancy charts that help retirement account holders figure mandatory distributions. The other tables are for beneficiaries of retirement funds and account holders who have much younger spouses.

Joe Retiree, who is 80, a widower and whose IRA was worth $100,000 at the end of last year, would use the Uniform Lifetime Table. It indicates a distribution period of 18.7 years for an 80-year-old. Therefore, Joe must take out at least $5,348 this year ($100,000 divided by 18.7).

To calculate the year’s minimum distribution amount, take the age of the retiree and find the corresponding distribution period. Then divide the value of the IRA by the distribution period to find the required minimum distribution.