In the first year you turn 70 ½ you must take a required
minimum distribution from your 401k or traditional IRA. The IRS page that explains this in detail
can be found here http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions
[1]

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When to start taking out

My father-in-law turned 73 this year and has not yet taken
his RMD this year from his account. I
wanted to take this time to research when and how much he needs to take out so
I can be better help to him in advising him about his finances.

Normally you can take your RMD anytime of the year, but
you must take it by December 31

^{st}. The one exception is the year in which you turn 70 1/2, for that year you can delay taking it until April 1^{st}of the next year.
As an example my mother-in-law turns 70 ½ in 2014. She can take her RMD anytime between 1/1/2014
- 4/1/2015. The next RMD for her must be taking between 1/1/2015 and
12/31/2015.

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What happens if you don't take it

To see what happens if you do not take your RMD you can
view the IRS FAQ on this question http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions#8
[2]

The simple answer is the amount
you should have taken out gets taxes at a 50% rate. So if your RMD is $1,000 and you are in a
15% tax rate you would normally pay $150 in taxes on the distribution. But if you do not take the RMD by the yearly
deadline you will get hit with a $500 tax (50%) vs the $150 (15%.... assuming
you are in the 15% tax bracket)

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Calculate the amount you need to take out

There are several RMD calculators out there here are a few
I found. It’s a lot simpler to use these
calculators rather than using the IRS forms to figure out what your RMD. I found all of these calculators to be
accurate.

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What numbers do you put in?

My father-in-law needs to get his 401k balance on 12/31/2012
to calculate what his RMD is for 2013.
Always take the account balance on 12/31 of the prior year to calculate
your RMD.

Using the calculator if I put in $100,000 as his balance on
12/31/2012 (which it is not) and his age this year, 73, and click calculate I
get a distribution percentage of 4.220%.
This number is based on his life expectancy. Giving a total RMD of $4,048.58

Keep in mind the number you put in there needs to be the
total of all your 401k/traditional IRA accounts. So if you have $50,000 in a 401K and $75,000

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The simple way

I find it very interesting to do calculation and understand
the process, but there may be an easier way to get your RMD figured out. I just called my father-in-laws Traditional
IRA asset manager (in his case J.P. Morgan) and because it is such a simple
equation they can do it right over the phone with him, selling the shares in the mutual funds he has
and sending him a check. (which is what
he did)

I am still glad for learning this. And JP Morgan is sending him a check from his
account that is the same amount the online RMD calculator.

I hope you found this article useful. J

**References**

[1] Retirement Plans FAQ
regaring RMD

Visited 12/2013

[1] What happens if a person does not take an RMD

http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions#8

Visited 12/2013

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