Once you turn 70 1/2, you must take withdrawals from your retirement plans. The IRS specifies the minimum amount you must take each year. Failure to take an RMD can result in severe tax penalties. The RMD each year is generally determined by dividing the balance in your retirement account at the end of the prior year by the distribution period found in the IRS's Uniform Lifetime Table Guide. The distribution period is based on the joint life expectancy of you and a hypothetical beneficiary who is 10 years younger. Some examples are shown in the table below. Assuming you had $500,000 in your retirement account on December 31 of the last year, your minimum required distribution this year would be:

Next year you would repeat the calculation, using the new balance and actuarial life expectancy to recalculate the minimum amount.

Alternatively, if your spouse is your sole beneficiary, you can use the actual joint life expectancy of yourself and your spouse, if he or she were more than 10 years younger; the required distribution would then be lower. Taking only the minimum required distribution will help you continue tax-deferral on money remaining in the retirement plan or IRA, and thereby save on taxes. Of course, after age 59 1/2 but before age 70 1/2, you are free to take a larger distribution if you need it, subject to ordinary income tax, but no penalty.

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