Elements of RMD

• Figuring out your RMD at age 70 1/2 involves a simple calculation using two numbers. The first number is your IRA balance -- how much money you have in your IRA. For the purposes of determining a given year's RMD, the figure to use is the balance from the day before the year began -- Dec. 31. The second number in the calculation is your "life expectancy factor." As the name suggests, this is based on the average life expectancy for people at your age. The longer you have to live, the smaller your RMD.
  
  

Life Expectancy Factors

• Internal Revenue Service Publication 590 includes charts that IRA owners use to determine their life expectancy factor. Which chart you use depends on your individual situation. If you are married to someone 10 years younger than you, and your spouse is the sole beneficiary of your IRA, then use the "Joint Life and Last Survivor Expectancy" chart, which takes into account not only your life expectancy but that of your spouse, who will get the money after you die. All other IRA owners -- unmarried people, people whose spouses are less than 10 years younger, and people whose spouses are not their sole beneficiaries -- must use the "Uniform Life Expectancy" chart.
  
  

Doing the Calculation

• To determine your RMD for the year in which you turn 70 1/2, start with your IRA balance on Dec. 31. For the sake of example, say it was $150,000. Then consult the life expectancy chart that applies to your situation. Say you are married to someone age 55. In that case, you'd use the Joint Life and Last Survivor Expectancy table. As of the 2010 tax year, the life expectancy factor for a 70-year-old married to a 55-year-old was 31.1. Dividing $150,000 by 31.1 gives you an RMD of $4,823.15. For those using the Uniform Life Expectancy chart, the life expectancy factor for a 70-year-old as of 2010 was 27.4. Dividing $150,000 by 27.4 gives you an RMD of $5,474.45.
  
  

Taking the Distribution

• With one exception, you must always take your RMD by Dec. 31. The exception is the year in which you actually turn 70 1/2. For that year only, you have until the following April 1 to take your RMD. IRA owners are responsible for calculating their own RMDs and making sure they take out enough money. Failure to do so can produce a stiff penalty: a 50 percent tax on the difference between your RMD and what you actually took out. This is on top of the regular income taxes you pay on IRA distributions.
  
  

Roth IRAs

• Mandatory distributions at age 70 1/2 and RMDs apply to owners of all types of IRAs except Roth IRAs. Owners of Roth IRAs are not required to take any distributions -- ever. Their beneficiaries, however, will have to take minimum distributions each year.