# How to Calculate Your Required Minimum Distribution

by | Oct 12, 2023 | Videos

The amount of your required minimum distribution will change every year. But why is that?

In this week’s video, Tom answers this common question. He also covers who has to take required minimum distributions, how to calculate your RMD each year, and strategies to make sure you take out the right amount to avoid the costly penalty.

If you are investing through a retirement plan like a 401(k) or IRA, you will be required to take distributions from there at some point down the road.

Tune in and learn how to calculate your own RMD!

Show Notes

Uniform Life Expectancy Table – IRS.gov

Changes Are Coming to Retirement Plans – Mullooly Asset Podcast

## How to Calculate Your Required Minimum Distribution – Full Transcript

Tom Mullooly: In Episode 356, we cover Required Minimum Distributions.

RMD stands for Required Minimum Distribution. If you’ve got money in a retirement account, that could be an IRA, or it could be a 401(k) that you’ve got at work or some other type of retirement plan, when you reach a certain age, you’re required to take out a minimum distribution. You can always take out more, and this is the thing that we try and stress to folks when we’re talking about planning options, the impact that this is going to have on your bottom line, on your taxes, on your income.

This is a required minimum distribution, so just remember that’s just the minimum. You can always take out more. But when you reach a certain age, you have to start taking out this minimum amount. How is that calculated? That seems to be the big mystery that we’re going to try and solve in this video.

So it’s based on a table that the IRS puts together. It’s published every year. There are three different tables that are used to calculate RMDs. The one that most people wind up using, it’s called Table III, and you can find it in the IRS guidelines if you’re so inclined to take a look. But basically what it does is it calculates the life expectancy for folks, they use a number of 100.

And so if you are, for example, 76, they use a factor of 23.7. What does that mean when we’re calculating RMD? You take the balance that’s in your retirement account, you divide that number that’s in the table, in this case as 76-year-old, their factor is 23.7. You’re going to divide that number by 23.7.

That is your required minimum distribution. The next year you’re going to go in as a 77-year-old, that factor is 22.9. You’re going to take the balance, you’re going to divide it by this factor, again, you’re going to get the RMD.

So why does the number change every year? Well, first, we’re getting older, so we’re going to have a different life expectancy and it’s going to continue to get shorter. Meaning, well, I’ll get to that in a second. But also the balance, how do we calculate the balance?

The IRS tells us that we have to use the balance on December 31st of the year before. So if the market had a bad year, you might be taking out less than you did the year before. If the market had a good year, the year before, you may be taking out more. So that number is going to change every single year.

You don’t have to wait until the end of the year to take your required minimum distribution. In fact, we have folks, we can kind of ballpark what their required minimum distribution, their RMD is going to be, and we can set up monthly amounts that go out and we can have taxes withheld that go straight to the IRS. You take the money and you do whatever you want to do with it.

So, it really is something that is going to change every year, but we have to pay attention to the numbers because if you don’t take your RMD, required minimum distribution, or if you take the wrong amount, if you don’t take out enough, there are penalties. It used to be that it was a 50% penalty on the difference that you didn’t take out. That number is now going to be 25% penalty.

It’s still, it’s a tax you don’t have to pay. It’s important that you get the numbers straight because of these penalties that are involved, and that will escalate over time if you miss more than one year. So make sure you’re talking with a trusted financial planner or investment advisor who can help you out.

That is the message for Episode 356. Thanks as always for tuning in.