Required minimum distributions (RMDs) are mandatory withdrawals from specific types of retirement accounts, including traditional IRAs, SEP IRAs, Simple IRAs, most 401(k)s, 403(b)s, and 457(b)s, and other non-Roth investment-related retirement accounts. Every person’s RMD is different, and it can change from one year to the next. By using an RMD calculator, it’s far easier to determine how much a person needs to withdraw based on current law.
With the SECURE 2.0 Act, most individuals aren’t subject to RMDs until they reach the age of 73 (aside from those who were age 72 or older in 2023). Failing to withdraw the required minimum distribution can lead to penalties, mainly in the form of an excise tax on the amount that should have been withdrawn but wasn’t. When that occurs, the person would need to file an IRS Form 5329 with their annual return to ensure the taxes are paid.
Avoiding the penalty is simple, as the only requirement is to ensure that the required minimum distribution is withdrawn. Here’s a look at how to use an RMD calculator to help make that happen.
Tips for Choosing a Calculator
There is a slew of RMD calculators available online. While many seem similar on the surface – primarily because they typically request the same inputs – it’s wise to find one that’s managed by a reputable source. Rules regarding RMD distributions can change based on new laws. As a result, finding a calculator that’s updated regularly to align with new regulations is a must. Otherwise, the calculator might be relying on old tables and equations, making them inaccurate by today’s standards.
Additionally, choose an RMD calculator that’s on a secure site. Usually, the easiest way to confirm that is to look for “https” in the website URL. Websites that only show “http” aren’t secure, which makes your information vulnerable.
Finally, consider using more than one RMD calculator. By doing so, you can compare the results to see if there are any discrepancies. Ideally, the displayed amounts are essentially equal. If not, that could indicate that one of the RMD calculators isn’t using the right tables or equations.
What Information Do You Need to Provide?
Most RMD calculators only require a few pieces of information, so they’re reasonably easy to use. First, you’ll usually need to enter the date of birth of the account owner. Next, you’ll need to provide the retirement account balance as of December 31 of the previous year. For example, for 2023 RMDs, you’d enter the retirement account balance as of December 31, 2022.
You’ll also need to answer a question about the primary beneficiary of the account. Additional information about the primary beneficiary – usually their birth date – is also potentially required.
Some RMD calculators may also ask you to estimate your annual return. That can lead to a more accurate RMD calculation. Calculators that don’t request that information may rely on an average instead, so keep that in mind.
After providing that information, the RMD calculator can handle the equations and tell you what the required minimum distribution for the current year is, giving you an initial figure.
How Should You Use the Results?
Generally, the result presented by an RMD calculator are considered informational only, so most companies that have them on their websites aren’t guaranteeing accuracy. That’s why any resulting RMD amounts should only be treated as a starting point. Compare the results from several RMD calculators to look for variances.
If you see notable differences, consult with a financial professional for additional guidance or use the IRS worksheets and the appropriate table – either the Uniform Lifetime, Table I (Single Life Expectancy, and Table II (Joint Life and Last Survivor Expectancy), depending on your situation – to do the calculations manually to confirm.
