ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

IRA Distributions

Updated on February 27, 2012

IRA Distributions - How they are calculated

So you've been working and saving making contributions to your IRA for years. Now you're coming to the age where the government rules say you must begin taking distributions. How does that work?

Once you reach the age 70+1/2 you are required to take distributions, also known as Required Minimum Distributions or RMD's. You may have IRA accounts at several different banks and investment firms. Each of those institutions are unaware of the accounts you have at the others. Only you know your total IRA savings so only you will be able to calculate your total required distribution.

At the beginning of the year you are going to turn 70+1/2, each institution should send you notification of an amount you are required to take as your distribution that year. It's important to communicate with each institution what you plan on doing. You have several options.

You could let each institution mail you a check for the distribution they calculate. But the smart thing to do would be to look at the interest you’re earning in each of your accounts. Let’s say you’re earning 3% interest on a 2 year IRA CD you have in a local bank and they have mailed you paperwork explaining you are required to withdraw 2,000.00 this year from the account. Then let’s say you have savings in an account at an investment firm earning 5% interest, and you receive a letter saying you must take a distribution this year of $4,000.00. Now you could let each institution mail you the above mentioned distributions. But the smart thing to do would be to tell the investment firm to NOT mail you any money, and tell them in writing you plan on taking your distribution from monies you have elsewhere. Then tell the local bank you would like a 6,000.00 distribution as you have monies elsewhere you are taking into consideration when calculating your amount. This way you leave your savings earning the highest interest rate alone, and you take from the place where your money isn’t working so hard for you.

Both institutions are fine with this as long as you communicate ahead of time, well before they mail out ‘automatic payments’ of your distribution. This is usually done at the end of the year. And truth be told, if they mail you a payment you didn’t want, even if you neglected to communicate to them, you can send the check back with written instructions to reverse the transaction, or redeposit it as you’re already met your RMD elsewhere.

Exactly how do the institutions calculate your RMD? The government has created a Uniform Lifetime Table. It assumes you’re going to live as long as 115 years! Isn’t that good news?!! Once you reach required distribution age, you can no longer make contributions. So, according to the chart below, based on your accumulated IRA funds (actually the value of the fund as of December 31 of the previous year) is divided by the percentage for that age. The first year would be your IRA value divided by 27.4% and that is the aggregate or total amount of your RMD the year you turn 70+1/2. The following year, again, calculations for RMD are based on the value of the fund as of December 31 of the previous year, and this time the dividing percentage is 26.5%. Your fund will slowly be decreasing in size over time, as will the percentage that is required for your RMD.

Basically you are spreading out your retirement fund to last throughout the rest of your life and be a steady source of income for you.

You can actually take the first year distribution anytime before April 1 of the year following the year you turn 70+1/2 should you want to delay that increase in your income. However you will be required to take that ‘following year’s distribution’ sometime before December 31. If you do that you’ll be taking two the second year.

For example, if you turn 70½ on July 25, 2012. You must take your first RMD, for 2012, by April 1, 2013. You are still required to take your second RMD, for the year 2013, by December 31, 2013, and your next RMD for 2014 by December 31, 2014 and so on.


    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)