hi I'm Brad Rosley today's hot topic is required minimum distributions from your
IRA accounts so recently I was talking with my mother and she's a senior
citizen and she asked me what is this required minimum distribution and how do
I figure out how much I have to take one do I have to take it and what are all
attached ramifications so I said okay mom I think that's a great topic let me
break that down into three areas for you number one what it is number two when
you have to take it and number three how it's calculated it is is it's a
distribution from a individual retirement account IRA that the
government forces you to take and they force you to take it because they want
your tax money for even for people who never have to take money out of their
their IRA people want you to do it it comes out of IRAs SEP IRAs or simple
IRAs it's a fixed amount of money there's a calculation for it and you
have to do it after you turn age seventy and a half okay so let me explain when
you have to take the distribution it's all predicated on when you turn 70 years
old if you turn 70 year old in the first
half of the year say I'm April that means you turn 70 and a half in the same
year which is the key turning point if that's the case you have to take the
distribution by the following April 15th what happens if your birthday is after
June 30th in that case you get a reprieve to wait a whole year so if your
birthday is on August 1st of 2017 you do not have to take that distribution out
until April 15th of 2019 so if your birthday is in the second half of the
calendar year then you don't actually turn 70 and a
half which is the government's magic age I don't know how they came up with that
but then you'll turn seven and a half you have taken by the following April
15th so the last part to figure out is how do
we calculate the actual number how much money that you're required to take out
well the IRS provides a table if you go to the irs.gov website you can find that
table very easily and all you need to do is to gather your year-end investment
statements from your IRAs seps or simple IRAs and look at the year-end balances
you have to take your distribution from the total balance of all those accounts
you can take it from different accounts you have to take it all from you don't
have to get off in one account you can or you can take it from each individual
account doing the same calculation so I have a chart that you can see here and
on that chart it shows your age and it shows a divisor you can either divide by
the factor or multiply times the percentage either way works so in this
example I have on the page here I used $100,000 total IRA balance you take the
$100,000 balance and let's just say year and year one of this required minimum
distribution you simply divide it by the factor which happens to be twenty seven
point four don't ask me how they come up with this no one knows but that's also
the same as three point six five percent believe it or not so you can multiply it
by three point six five percent or divide by twenty seven point four well
$100,000 times three point six five is three thousand six hundred and fifty
dollars you need to take that out by twelve thirty one of that year or if
it's in your first year and as I described earlier you can wait to April
fifteenth in year two you look at your balance from your IRA statements you add
them together and now you use the factor that's in the next line and you multiply
that time as the higher percent or divided by that lower number as you'll
see the amount the government once you take out grows a little bit every year
as you get older you can take out by the way more
then their requirement in distribution so if you need more money by all means
go ahead and take it one other factor you should understand is when you take
money out of an IRA that money has never been taxed before it will be taxed now
it's taxed as what's called ordinary income the investment company where you
have the money will send you a statement at the end of the year called a 1099 are
they'll take that statement there's a place for writing your tax return you've
put that amount of your distributions throughout the year on that statement
and you're gonna have to go ahead and pay the tax on it and that's all there
is to this RMD required minimum distribution if you do have more
questions about it I've written about it in a blog post feel free to go ahead and
look at the post and see it on writing as well thank you very much
have a great day