How to Calculate IRA Withdrawals

By Shani Valdez

  • Overview

    The IRS requires non-Roth account owners to commence annual Required Minimum Distributions (RMDs) the calendar year he or she reaches age 70 ½. Your first RMD can be held off until April 1 of the following calendar year, but you will be required to take your second RMD by December 31 of that year as well; therefore, you will be responsible for taxes on two distributions, which could put you in a higher tax bracket (discuss the tax implications of extending out your first RMD with your tax advisor).
    How to Calculate IRA Withdrawals
    How to Calculate IRA Withdrawals

    • Step 1

      Attain the Individual Retirement Arrangements (IRAs) publication 590, on Irs.gov. Look up your life expectancy divisor under one of the three applicable IRS tables: Joint and Last Survivor Table, the Uniform Lifetime Table, or the Single Life Expectancy Table.

    • Step 2

      Get a copy of your IRA year-end balance from the previous calendar year. This must be done for all non-Roth accounts. The IRS does not treat multiple non-Roth accounts as one account, as is the case with Roth IRA, when calculating your RMD.

    • Step 3

      Divide the IRA year-end balance by the life expectancy divisor found in publication 590. The end amount is what you need to take for your RMD for the year. If you have multiple non-Roth accounts, you may take the sum of all your RMDs out of one non-Roth account.

    • Step 4

      File form 5329 with your federal tax return if you neglected to take out your RMD for the calendar year or miscalculated the correct RMD amount.

    • Step 5

      Provide a letter with form 5329 if you can provide a reason to the IRS as to why the appropriate RMD amount wasn't taken and what you plan to do to remedy the situation. You may be able to avoid the 50 percent tax penalty with the IRS if you can successfully show a reasonable error.

    • Step 6

      Include your RMD as part of your ordinary taxable income. Your distribution may put you into a higher tax bracket. Consider putting some of the distribution aside for taxes if necessary.
    • Skill: Easy
    • Ingredients:
    • IRS Publication 590
    • Calculator
    • Tip: While you must calculate your RMDs separately for each personal IRA and can take the sum from one account, you cannot do that with 401k/457b employer sponsored retirement accounts. RMDs must be calculated and distributed separately from these accounts.
    • Warning:
    • Failing to take your RMD will subject you to a severe 50 percent tax penalty by the IRS on the required distribution. Not withdrawing your RMD creates potential tax issues, as you are required to pay taxes and penalties on any missed distributions. Due to the global economic meltdown, this year's RMD are waved by the IRS and will resume next year.

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