A Financial Planner Explains How To Calculate Your RMDs In Retirement

At the age of 73, retirees, who may already be dealing with medical expenses, must also begin managing their required minimum distributions (RMDs). RMDs are mandatory yearly withdrawals retirees must make from their tax-deferred retirement accounts, such as 401(k)s, 403(b)s, and some IRAs; they are subject to income tax. Making matters worse is that calculating the withdrawal amount is not as simple as taking a percentage of one's retirement savings. And if done at the wrong time, retirees may end up paying their RMDs twice in a year.

"Your retirement account custodian will determine your RMD amount automatically each year and provide you with that information. But it's your responsibility as the account owner to make sure the amount is correct and the distribution is made," says Eric Heckman, CEO of Heckman Financial and Insurance Services, Inc., in a Kiplinger post. According to Heckman, "... you can do the math yourself and divide your previous year-end account balance by the life expectancy distribution factor next to your age on the IRS Uniform Lifetime Table." The life expectancy factor is the IRS estimate of how long an individual is expected to live at a certain age. For example, a 75-year-old has a life expectancy factor of 24.6. Putting it all together, a 75-year-old with $250,000 in a 401(k) — a figure close to what the average baby boomer has in retirement savings — would need to take an RMD of $10,162 that year. 

Retirees who are married and have a living spouse must also take an annual RMD, but in some scenarios, their mandatory withdrawals may look different. Generally, each spouse must take an RMD separately after turning 73, and the amount should be calculated only on their respective accounts and life expectancy factor. However, there is an exception for couples where one spouse is more than 10 years younger than their partner and is the sole beneficiary of their spouse's tax-advantaged accounts. In this scenario, retirees would calculate their RMD based on the IRS's Joint Life and Last Survivor Expectancy Table II, which uses a different life expectancy factor than the uniform table; the calculation may result in a lower withdrawal amount.

For retirees with multiple RMD-eligible accounts, calculating RMDs does not become any more difficult. To find the correct withdrawal amount, retirees should calculate their RMD for each individual account using the appropriate life expectancy table and factor. However, there's no need to ensure that each account meets its minimum withdrawal. "For example, after calculating the RMD separately for each traditional IRA you own, you can add up the amounts and withdraw the total from just one of your IRAs," says Heckman. There's no need to spend the money — it can easily be invested elsewhere and continue to grow. Retirees looking to lower their minimum withdrawal amount from RMD could also convert an IRA to a Roth IRA before a certain age.