Beneficiary Required Minimum Distribution (RMD) Calculator
For beneficiaries of a retirement plan, specific IRS rules regulate the minimum withdrawals that must be taken. If the beneficiary wants to simply take their inherited money right now and pay taxes, he or she can. If instead, a beneficiary wants to defer taxes as long as possible, there are certain distribution requirements with which the beneficiary must comply. Use this calculator to determine the Required Minimum Distributions (RMDs) for a beneficiary of a retirement account.
Definitions
Calculation notes
This calculator follows the IRS rules and life expectancy tables that were finalized on April 16, 2002. These IRS regulations were optional in 2002, but became mandatory as of January 1, 2003. This calculator was last updated in January of 2004 to ensure compliance with IRS rules and regulations. If you have any questions, please consult with your own tax advisor regarding your specific situation.
Life expectancy calculations
A. Non-spousal beneficiary
In the year following the year of the owner’s death, life expectancy is generally determined using the Single Life Expectancy Table and the beneficiary's age on December 31st of that year. This calculator starts with the first required minimum distribution for the year following the owner’s death. However, if this is not the first year of distribution for the beneficiary, then the RMD must be determined manually. First, one must find the original life expectancy using the Single Life Expectancy Table and the beneficiary's age on December 31st of the year following the year of the owner's death. Then, to determine the current life expectancy, that number must be reduced by one, for each year that has passed, since the year following the owner’s death. Likewise, in all future years, the remaining life expectancy is calculated by subtracting one from this number for each additional year that passes. In all cases, the December 31st balance from the prior year is used in the calculation.
If the account owner was younger than the beneficiary, and if by the time of death, the account owner’s Required Beginning Date (RBD) had passed, then the beneficiary must use the account owner's life expectancy to calculate Required Minimum Distributions (RMDs). In this special case, the result will be a lower RMD. If this situation occurs, this calculator will use the account owner's age as of December 31st of the year of death when calculating RMDs. Since the first beneficiary RMD occurs in the year following the year of death, one has to be subtracted from the account owner’s life expectancy in determining the RMD for that year. For future years, the calculation is identical to the one described in the previous paragraph.
B. Spousal beneficiary
An additional option available to spousal beneficiaries permits the spouse to treat an inherited account as his or her own. In this case, no distributions are required until the year in which the spouse reaches age 70 1/2. When distributions do begin, the spouse can use the Uniform Lifetime Table, which produces longer life expectancies than the Single Life Expectancy Table, to determine the applicable life expectancy. In addition, a spouse is able to "recalculate" or lookup a new life expectancy from the Uniform Lifetime Table each year. This produces the lowest RMD in most situations. This calculator will always assume that a spouse wishes to treat an inherited IRA as his or her own.
Account balance
This is the fair market value of the account as of the close of business on December 31st of the preceding year. Projection of balances for future years assumes the RMD is distributed on December 31st of the year for which it is required. In determining the December 31st balance for the year of the owner’s death, an RMD must be subtracted if the death occurred on or after the Required Beginning Date (RBD). This RMD would be based on the owner’s life expectancy under the Uniform Lifetime Table. Our Required Minimum Distribution (RMD) Calculator can be used to obtain this value.
Account owner's age at death
This is the age the owner would have been as of December 31st in the year of death.
Beneficiary age
This is the age of the beneficiary as of December 31st of the year following the account owner's death. For example, if the account owner died in March of 2002, you would need to enter the beneficiary's age as of December 31, 2003.
Rate of return
This is the expected rate of return on the account. This is only used to help project the future account balances (which of course will impact the required minimum distribution). The actual rate of return is largely dependent on the type of investments selected. From January 1970 to December 2003, the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 11.7% per year. During this period, the highest 12-month return was 64%, and the lowest was -39%. Savings accounts at a bank may pay as little as 1% or less. It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on the investment.
Is account owner beneficiary's spouse?
If the beneficiary is the spouse of the original account owner, and he or she is the sole beneficiary, then this individual has the ability to treat the inherited account as if it was his or her own. This is the most flexible and often times the best choice for this type of beneficiary. This calculator assumes that this is the option chosen. If you check this box, normal account owner distribution rules apply, including, but not limited to, minimum distributions not being required until the beneficiary reaches age 70 1/2. If the beneficiary treats the inherited account as his or her own, distributions received prior to age 59 1/2 will generally be subject to a 10% penalty tax (certain exceptions apply).
Is beneficiary's birthday after June 30th?
Check this box if the beneficiary's birthday is after June 30th (note: this only applies to spousal beneficiaries). This is a factor in determining whether the spousal beneficiary will be required to begin distributions from the inherited account in the year he or she reaches age 70 or 71. For calculating the first year's distribution, the IRS specifically states to use the beneficiary’s age on their birthday in the year they turn 70 1/2. For example, if the beneficiary’s birthday is between January 1st and June 30th, in the first year of distribution, he or she would be age 70. If the beneficiary’s birthday is between July 1st and December 31st, then in the first year of distribution, he or she would be age 71.
Required Beginning Date
This is April 1st of the year following the first year an owner must begin taking required minimum distributions.
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