Minimum Required Distribution: Don’t Miss It!

By Russell Wild

Part of Investing in Bonds For Dummies Cheat Sheet

In the United States, people have the minimum required distribution (MRD) on 401(k) plans as well as regular and rollover IRAs. And woe is you if you miscalculate. Your finances will certainly be pummeled hard, but at least you won’t be stoned.

You should be happy to live in a country where people who break the law are given due process and, if found guilty of a crime, they’ll neither have their limbs removed, nor will they be stoned to death.

Of course, the calculation is easy — says the IRS. You simply take your retirement account’s starting balance as of December 31 the prior year and divide that number by your “life-expectancy factor” (which is found in IRS publication 590, available on the IRS website).

Don’t get it wrong! The penalty for taking less than your minimum required distribution is brutal. If you withdraw less than the required minimum amount, the IRS can nail you for a sum equal to 50 percent of the MRD not taken.

MRDs generally begin at age 70 and a half. If you feel uncomfortable doing the calculation yourself, a retirement specialist at the brokerage house where you have your account will help you, or you can ask your tax guru.