Required Minimum Distribution Method


DEFINITION of 'Required Minimum Distribution Method'

One of three methods by which early retirees of any age can access their retirement funds without penalty before turning 59 ½. Normally, funds withdrawn before age 59 ½ are assessed a 10% early withdrawal penalty. Funds must be withdrawn as substantially equal periodic payments as outlined by Internal Revenue Code Section 72(t) and must continue for five years or until the retiree reaches 59 ½, whichever is longer. If withdrawals are stopped, all funds that have already been withdrawn become subject to early withdrawal penalties.

The annual distribution amount is calculated by dividing the retirement account balance on December 31 of the prior year by the retiree's remaining life expectancy as determined by the IRS's life expectancy table. This means that an increase in the retiree's account balance will lead to larger distributions and a decrease in the retiree's account balance will lead to smaller distributions.

BREAKING DOWN 'Required Minimum Distribution Method'

The two other methods for early, penalty-free retirement withdrawals are the fixed annuitization method and the fixed amortization method. The required minimum distribution method is considered to be the simplest. Each method can result in quite different distribution amounts.

  1. Roth IRA

    An individual retirement plan that bears many similarities to ...
  2. Required Minimum Distribution - ...

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
  3. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  4. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  5. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  6. Finance

    The science that describes the management, creation and study ...
Related Articles
  1. Retirement

    Borrowing From Your Retirement Plan

    Left with no alternative but to take money out from your retirement savings? Here are some guidelines.
  2. Budgeting

    Managing Income During Retirement

    Learn some sensible strategies for making your hard-earned savings last for as long as you need them.
  3. Taxes

    Tips For Moving Retirement Plan Assets

    Moving assets is common when changing jobs or retiring, but you have to do this carefully to avoid penalties.
  4. Taxes

    An Introduction To Correcting Ineligible IRA Contributions

    Eager to save for retirement? Find out how to avoid overpayment penalties.
  5. Professionals

    Are ETFs a Good Fit for 401(k) Plans?

    The popularity of ETFs among investors and advisors continues to grow. But are they a good fit for 401(k) plans?
  6. Retirement

    Using Your 401(k) to Pay Off a Mortgage: The Pros and Cons

    Learn the advantages and drawbacks of using assets accumulated within a 401(k) retirement savings plan to pay down a mortgage balance.
  7. Mutual Funds & ETFs

    What Target-Date Funds Can Teach About Investing

    Target-date funds are a popular way to invest for retirement. Here's what they can teach the novice investor.
  8. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  9. Professionals

    How to Protect Retirement and Help Adult Kids

    Parents can both protect their retirement money and help their adult kids. Here's how.
  10. Retirement

    10 Ways to Save Your Retirement: It's Not Too Late

    It's not too late to start saving for your retirement, even if you took longer to start thinking about it and doing something about it.
  1. What is the size of the average retirement nest egg?

    According to a 2015 Government Accountability Office (GAO) study, people between the ages of 55 and 64 with any retirement ... Read Full Answer >>
  2. How does a Roth IRA grow over time?

    Your Roth IRA account grows over time thanks to two funding sources: contributions and earnings. While your contributions ... Read Full Answer >>
  3. Can my 401(k) be seized or garnished?

    As long as your retirement funds are held in your 401(k) and you do not take them as distributions, your 401(k) cannot be ... Read Full Answer >>
  4. Can my IRA be taken in a lawsuit?

    Whether your IRA can be taken in a lawsuit depends largely on your state of residence and the judgment in question. There ... Read Full Answer >>
  5. Are mutual funds considered retirement accounts?

    Unlike a 401(k) or Individual Retirement Account (IRA), mutual funds are not classified as retirement accounts. Employers ... Read Full Answer >>
  6. Can my IRA be garnished for child support?

    Though some states protect IRA savings from garnishment of any kind, most states lift this exemption in cases where the account ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!