Because contributions to traditional Individual Retirement Accounts are tax deductible, the IRS has special requirements regarding mandatory distributions, ensuring that everyone pays the tax owed on the money that's been growing untaxed in retirement accounts for years. In the year you turn 70 1/2 years old, you must take a taxable distribution. The minimum required amount is calculated using actuarial tables based on life expectancy. Failure to take the distribution results in tax penalties of 50 percent of the amount not withdrawn.

## What is the Required Minimum Distribution?

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The required minimum distribution is the amount you must withdraw each year, beginning in the year you turn 70 1/2. You may defer your first distribution to the following year, but each subsequent distribution must be taken by December 31 to avoid the 50 percent penalty on undistributed amounts.

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The minimum requirement applies to all IRA accounts, whether or not you have retired by age 70 1/2. Other employer-sponsored retirement plans allow you to waive the requirement if you are still working. However, once you retire, you must take the required minimum distribution from all such plans.

The trustee of your IRA may notify you of the requirement and may calculate the minimum distribution for you. However, you are personally responsible for ensuring the distribution is made, even if your trustee does not inform you.

## How is the RMD Calculated?

The amount you must take is based on your life expectancy. The required minimum distribution is calculated by dividing the balance of the IRA account on December 31 of the previous year by the life expectancy factor from the appropriate table. The IRS furnishes the necessary tables in Publication 590.

If you have more than one IRA, you must calculate the amount separately for each account. However, you may withdraw the amount from one account, rather than taking some money from each.

Example: You are unmarried and 70 years old in 2011, the year you take the first required minimum distribution. Your IRA balance is $50,000. Using Table III in Publication 590, your age indicates a distribution period of 27.4 years. Your RMD for 2011 is $1,825 ($50,000 divided by 27.4 years).

## Which Table Should You Use?

IRS Publication 590 contains three life expectancy tables. Table II is for a married IRA owner whose spouse is the beneficiary and is more than 10 years younger than the owner. The amount of the required minimum distribution takes into account both your life expectancy and that of your spouse, requiring you to take a smaller amount now, in order to leave more for your spouse's retirement later on.

Find your age in the left-hand column and your spouse's age along the top of the table. The intersection gives you the distribution period. Divide the account balance by this number to determine your minimum distribution for the current year.

Use Table III if you are unmarried, or if your spouse is either less than 10 years younger than you or is not your beneficiary. Find your age in the left-hand column and divide the account balance by the distribution period to determine the amount you must withdraw for the current year.

Table I is for inherited IRAs. Distribution is based on the age of the beneficiary, not the age of the owner.

## Inherited IRAs

Table I is for beneficiaries of an IRA when the original owner has died. If you are the spouse, you may decide to take the distribution in the year following the owner's death, using Table I and your age, or you may decide to become the owner of the IRA. If you choose the latter, you will not be required to take any distributions until you turn 70 1/2.

If you are not the owner's spouse, you must take the required minimum distribution in the year following the owner's death, and use your own age in Table I to calculate the distribution amount.

## Waiving the Minimum Distribution

Currently you can not waive the minimum distribution requirement for IRAs. You may qualify for a waiver of the penalty for failing to withdraw funds if the shortfall was due to an error and not in order to avoid the distribution. You must take reasonable efforts to remedy the situation, including filing additional paperwork with the IRS to explain both the shortfall and how you intend to take the necessary distribution.

## Qualified Charitable Distributions

You may elect to take your required minimum distribution in the form of a charitable contribution made directly by the trustee of your IRA to an organization eligible to receive tax-deductible contributions. This does not exempt you from the required withdrawal, but because you may exclude up to $100,000 in taxable distributions per year under the qualified charitable distribution provision, you can reduce your taxable income.

The charitable distribution will be noted on your 1099-R. You may only use a taxable distribution to cover your required minimum distribution. If any portion of the distribution is non-taxable, it may fail to cover your minimum distribution for the year, and make you eligible for the under-distribution penalty.

## Which Tax Forms Must Be Filed?

If you take the required minimum distribution as required, no additional paperwork is necessary. The plan administrator will send you a 1099-R in January of the year following the distribution. The amount of taxable income will be indicated. This figure goes on Form 1040, line 15b. If you take your distribution as a qualified charitable distribution, put that amount on Form 1040, line 15a.

If you failed to take the required minimum distribution or need to report a shortfall, you are required to fill in Form 5329. This form will calculate your penalty or allow you to request a waiver.