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 Normally, funds withdrawn before age 59 ½ are assessed a 10% early withdrawal penalty. Funds must be withdrawn as substantially equal periodic payments as outlined by Internal Revenue Code Section 72(t) and must continue for five years or until the retiree reaches 59 ½,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 If withdrawals are stopped, all funds that have already been withdrawn become subject to early withdrawal penalties.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.

RELATED TERMS
  1. Fixed Amortization Method

    One of three methods by which early retirees of any age can access ...
  2. Four Percent Rule

    A rule of thumb used to determine the amount of funds to withdraw ...
  3. Hardship Withdrawal

    An emergency withdrawal from a retirement plan that may be subject ...
  4. Term Certain Method

    A method of calculating minimum distributions from a retirement ...
  5. Mandatory Distribution

    The amount an individual must withdraw from certain types of ...
  6. Qualified Reservist

    A member of the military reserve who is not actively serving ...
Related Articles
  1. Retirement

    Why The 4% Rule No Longer Works For Retirees

    The 4% rule basically states that retirees can withdraw that much from their portfolio each year without depleting the principal too early.
  2. Retirement

    How Much Should Retirees Withdraw From Accounts?

    It can be difficult to determine how much money you can withdraw from your retirement savings each year without depleting your accounts.
  3. Retirement

    3 Safer Income-Oriented Asset Classes for Retirees in 2016

    Learn why the chase for safe retirement income will continue in 2016 with market yields remaining low, even with the Fed's first tightening move in many years.
  4. Taxes

    5 Penalty-Free IRA Withdrawals

    Most Americans think that an IRA is locked up until they reach 59.5, and withdrawals before that date trigger taxes and a 10% penalty tax. This is not always true.
  5. Retirement

    When a 401(k) Hardship Withdrawal Makes Sense

    If you've exhausted all other avenues, there are ways to withdraw funds before age 59½ – sometimes without the 10% penalty that's usually due.
  6. Your Clients

    Top 5 Retirement Mistakes and How to Avoid Them

    Retirement planning becomes extra important in the final stretch, with many common mistakes becoming very costly. Here are some tips to avoid any problems.
  7. Retirement

    Asset Distributions A Key Consideration For Retirees

    How you distribute qualified retirement plan money can affect your taxes and Social Security benefits.
  8. Personal Finance

    Why The 4% Rule No Longer Works For Retirees

    Researchers have proven that the 4 % rule, which stated that retirees can withdraw 4% of the value of a portfolio each year without depleting the principal for 30 years, is not a realistic withdrawal ...
  9. Retirement

    6 Signs You're Ready to Retire Early

    If you can answer "yes" to these six questions, you may be ready to retire early.
  10. Financial Advisors

    Top Tips for Retirement Account Withdrawals

    Top things you need to know when it comes to managing the complex task of retirement account withdrawals.
RELATED FAQS
  1. As a 24 year old, what are my options to start saving/investing for retirement?

    I am employed, but do not have 401k or savings plan.  ... Read Answer >>
  2. Are there penalties for withdrawing monies invested in annuities?

    Learn about the penalties associated with taking early withdrawals from an annuity. Steep penalties are assessed by the insurer ... Read Answer >>
  3. How does a qualified retirement plan early distribution work?

    Weigh the pros and cons of taking an early distribution from a retirement account. Most early distributions are subject to ... Read Answer >>
  4. I converted my former IRA to a Roth for tax purposes in 1998, so even though the ...

    Because you are over age 59 ½, you will not owe any early-distribution penalty on any distributions you take from your Roth ... Read Answer >>
  5. When can I withdraw my IRA money?

    Managing an individual retirement account can be tricky. Find out when you can withdraw IRA money without incurring a 10 ... Read Answer >>
  6. What does a sample plan using the 4% retirement rule look like?

    Discover how the 4% retirement rule can work as part of a plan to achieve increasing retirement income if investments perform ... Read Answer >>
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center