What Is the Required Minimum Distribution?

Physician's Money Digest, February 2006, Volume 13, Issue 2

Some of you may be in the position that you haveto begin taking what is commonly referred to asthe required minimum distribution (RMD)from your traditional IRA, if you have reached age70 1/2. Although you can always take out more thanthis amount, the government requires you to withdrawno less than the RMD on an annual basis. Youmay begin withdrawing as much or as little as youlike once you have reached age 59 1/2, but you generallycannot withdraw funds prior to this age withoutincurring early withdrawal penalties.

If your spouse is your beneficiary, upon yourdeath they can roll over your retirement plan intotheir traditional IRA. Required distributions aren'tobligatory until they reach age 70 1/2. Your spousecan leave the assets in your IRA and pull minimumdistributions by either the end of the calendar yearfollowing the year in which the spouse died or theend of the calendar year in which the spouse wouldhave turned age 70 1/2.

How does one determine their RMD? By way ofexample, let us consider the case of Dr. and Mrs.Sherman, who are both retired. When Dr. Shermanretired several years ago, he rolled his 401(k) into atraditional IRA. He turned 70 in July 2005, and hiswife is 69. Currently, he has accumulated approximately$1,275,661 in his IRA and has not yet beguntaking distributions. By April 1, 2006, he is requiredto begin taking the RMD.

In order to calculate the RMD, take the December31 closing IRA balance from the prior year anddivide by the appropriate distribution period,obtained from the Table III (Uniform Lifetime) foundin IRS Publication 590 (see http://www.irs.gov/pub/irs-pdf/p590.pdf). I utilized Table III for the calculationsince Dr. Sherman's spouse is the sole designatedbeneficiary and is only a year younger than him.

Table III applies when the owner's spouse is thesole designated beneficiary of the IRA, and thespouse is not more than 10 years younger than theowner. Table III also applies to unmarried owners.The calculation follows:

Closing IRA balance on Dec. 30, 2005 $1,266,428

Distribution period in years 27.4

Annual RMD $46,220

In other words, Dr. Sherman must withdraw noless than $46,220 from his IRA in 2006. He mustalso report this amount as a taxable IRA distributionfor tax year 2006.

There are two other IRS tables that may be utilized.For an IRA owner whose spouse is more than10 years younger and are the sole beneficiaries, besure to use Table II (Joint Life and Last SurvivorExpectancy) to determine the distribution period.Beneficiaries should use Table I (Single Life Expectancy)to calculate RMD.

Thomas R. Kosky and his partner, Harris L. Kerker, are principals

of the Asset Planning, Group, Inc, in Miami, Fla. The company specializes

in investment, retirement, and estate planning. Mr. Kosky

also teaches corporate finance in the Saturday Executive and

Health Care Executive MBA Programs at the University of Miami

in Coral Gables, Fla. Mr. Kosky and Mr. Kerker welcome questions or comments

at 800-953-5508 or e-mail Mr. Kosky directly at ProfessorKosky@aol.com.