Figure Your IRA Required Minimum Distributions

If you have a traditional IRA then you may be required to take what are called Required Minimum Distributions (RMD).   An RMD is required once you hit 70 1/2 years old.   The basic idea here is that the government wants you to 'live a little' and spend some of that money before you pass away (because they want the taxes).    So the laws require that you start withdrawing money once you hit 70.5.    Note :  The RMD rule does not apply to a Roth IRA.

When you hit 70.5 years old the RMDs are required.   The amount of the RMA is based on your age and the amount in the IRA.   You have to take out a certain % of the funds each year and the amount changes.    The RMD will be taxed as normal income.

Avoid 50% penalty
Taking the RMD is required and if you fail to make minimum withdrawal  required then you may have to pay a 50% excise tax on the amount you failed to distribute.   Its far better to take the withdrawal as required and pay regular income tax than to pay a 50% penalty tax.

When do they start?

The IRS says: "you must generally start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70½."

How much is it?

The IRS says: "Figure your required minimum distribution for each year by dividing the IRA account balance ...as of the close of business on December 31 of the preceding year by the applicable distribution period or life expectancy."

The account balance in your IRA is based on the amount in the account after market closes on December 31st.   That is a fixed amount and won't fluctuate cause business has closed.   You need to look at the amount at the end of the year and not any other date.   This should be straight forward enough.  Just look at the account balance on December 31st at 6PM.   Example:   On December 31st of 2011 after 5PM your IRA balance was $56,000 then that is the account balance you use for your 2012 distribution.

The amount of the RMD is basically based on your age.  Simply put they take your balance and divide it by your life expectancy.  So for example if you're 76 years old your life expectancy is 22 years so they expect you to withdraw 1/ 22 th of the money that year.      Every year you age your life expectancy goes down by a little less than 1 year.   So the actual amount you have to withdrawal goes up as a % of your holdings.  The life expectancy values are based on tables defined by the IRS.   You have to use the IRS tables. 

The IRS tables are in the appendix of pub. 590.

Table I = used for people who inherit a IRA
Table II = used for married couples who are more than 10 years apart in age
Table III = single people and married couples less than 10 years apart.

Here are the values from Table III

Age	Factor	%
70	27.4	3.65%
71	26.5	3.77%
72	25.6	3.91%
73	24.7	4.05%
74	23.8	4.20%
75	22.9	4.37%
76	22	4.55%
77	21.2	4.72%
78	20.3	4.93%
79	19.5	5.13%
80	18.7	5.35%
81	17.9	5.59%
82	17.1	5.85%
83	16.3	6.13%
84	15.5	6.45%
85	14.8	6.76%
86	14.1	7.09%
87	13.4	7.46%
88	12.7	7.87%
89	12	8.33%
90	11.4	8.77%
91	10.8	9.26%
92	10.2	9.80%
93	9.6	10.42%
94	9.1	10.99%
95	8.6	11.63%

Over age 95 it keeps going up until you hit a max for age 115.

Example :    Bob is 79 years old and single.  He has $56,000 in his IRA.      The RMD is 1/ 19.5 of the value so he has to withdraw 56000 / 19.5 = $2,871.79.

Example 2 :   Roy and Cindy are married.   Roy is 71 and Cindy is 70.   They have to take RMD from Roy's IRA.  He has $428,000 in the IRA right now.  The minimum withdrawal is 428,000 / 26.5 = $16,150.94

Here are the basic steps to figure your RMD every year: 

1. Are you older than 70.5 years old?  If so then proceed to step 2.  If not then you don't have to do an RMD
2.  Take your IRA balance at the end of the day on Dec. 31st. 
3. Look up your life expectancy value from the tables in the appendix of pub. 590. 
4. Divide the IRA balance from step 2 by the life expectancy factor in step 3.   This is the RMD value.


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More Proof that Rich People are Evil

I'm in a cranky mood so I'm going to make fun of media articles some more.

First lets start with the case of the class warfare inciting tip.

It seems that a "wealthy banker" left a 1% tip to some 99%'er in Newport California.   Here's the article :
Banker’s Insulting Waitress Tip Incites Class Warfare Between the 1% and the 99%
The credit card receipt had the note "get a real job" written on it with that insulting 1% tip.   This is pretty solid proof that rich people are evil.    You can read all about the atrocity yourself in the article.   They also have a video that probably says stuff, but I can never get Yahoo videos to do anything but show me an ad and then crash.  I'll have to take their word that video of this class warfare salvo exists.

In other, far less important news... that 1% tip article was quickly revealed as a hoax and reported on by the same media outlet the next day.   Update: Banker’s Insulting Waitress Tip Is a Hoax    The lower class can return to defcon 3.

While we're talking about evil rich people, who doesn't love to hate the rich guy who thinks he's poor?    We can add Andrew Schiff to that list.  You can read his story in :   Bonus Withdrawal Puts Bankers in "Malaise"
Well at least when Yahoo presented the article it gave the strong impression that Schiff thought he was struggling.  If you read the article itself he's not exactly complaining about being poor or anything.  " "I'm crammed into 1,200 square feet. I don't have a dishwasher. We do all our dishes by hand."  He makes $350,000 a year, but only takes home $200,000.   Stop hating on him.   Shifff explains that "I wouldn't want to whine." and "All I want is the stuff that I always thought, growing up, that successful parents had."   And let me repeat... he doesn't have a dishwasher!!    The same article also relays the harrowing tale of a guy who decided against going to Mardi Gras for a wet t-shirt contest and instead had to settle for buying a $50,000 foreclosed house, presumably as an investment property.  The horror!    You poor people should just think about that for a second  :  that house you couldn't afford and were kicked out of is a poor replacement for the debauchary in Orleans that this man wanted instead.  Lastly theres a guy that calls his Porsche 911 "the Volkswagen of supercars."   If you call your $80,000 sport car a Volkswagen then does that qualify as frugality?

In other very unimportant news Andrew Schiff later responded to criticism over his whining and complaining that he was poor.   Banker Bonuses: Wall Streeter With $350K Salary Responds To The Outrage Over His Comments (complete with another video that doesn't work for me).
Schiff explains how the article basically misrepresented him.  "In the accompanying video, Schiff stresses he never complained to the Bloomberg reporter about his lifestyle, realizes he's one of the lucky ones and "understands why people feel bad reading about what I'm saying.""   he also points out "When he said "I feel stuck," Schiff says he was referring to a specific incident involving a major traffic jam, not a commentary about his bank account."     HA!  Next he'll probably try and tell us that he doesn't even steal candy from babies.

Since you've undoubtedly stopped reading by now in order to go muster your next class warfare offensive strike I won't bother to comment on this story.
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Best of blog posts for week of March 2nd

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week. 

DoughRoller compares FICO vs. FAKO–Does it Matter?

MyMoneyBlog does a TaxACT 2011 Review: My User Experience With Screenshots
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Example of Exaggerated Impact of Advertisement on Children

I was in the doctors office a while ago and they had a poster that claimed that a child sees 19,000 advertisements for fast food in a year.    Where do people come up with these numbers?  

I previously discussed the topic of how many ads we are exposed to daily and my opinion is that the numbers we see cited are usually exaggerated.  Lets look at the claim in the poster in question.

19,000 advertisements a year comes out to an average of 52 ads per day.   This was specifically ads for fast food.   If a TV commercial is 30 seconds long then thats 26 minutes of TV fast food commercials per day.   I guess if you plopped your 3 year old kid down in front of the TV for 8 hours every day then they could very well see that much fast food advertisements but it seems unlikely.

I found this report from University of Illinois, Chicago researchers which found : " Children aged 2 to 5 and 6 to 11 years saw, respectively, on average, 10.9 and 12.7 food-related television advertisements daily in 2009"

The 2-5 year old kids saw fewer ads.  If you round that up to 11 per day then it is 4,015 per year.   But even the older 6-11 year old kids only got 13 a day or 4,745 per year.

Where else is a 3 year old going to get fast food advertisements?   Radio ads?   Reading their local newspaper?   Using the internet?   I don't think toddlers tend to read the local paper all that much and the vast majority of them are a little too young to be using the Internet.   I'm sure a toddler may see a few ads from things like ads on buses or billboards, but it certainly won't add up to dozens per day on average.    Among all the misc. ads they may see posted in public the majority won't be for fast food either.

Again, I have to wonder here do people come up with numbers like what that poster claimed?

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