Required Minimum Distribution Method

AAA

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 Normally, funds withdrawn before age 59 ½ are assessed a 10% early withdrawal penalty. Funds must be withdrawn as substantially equal periodic payments as outlined by Internal Revenue Code Section 72(t) and must continue for five years or until the retiree reaches 59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 If withdrawals are stopped, all funds that have already been withdrawn become subject to early withdrawal penalties.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

INVESTOPEDIA EXPLAINS '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. 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. Individual Retirement Account - ...

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

    An individual retirement account (IRA) that allows individuals ...
  5. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  6. Finance

    The science that describes the management, creation and study ...
RELATED FAQS
  1. No results found.
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

    Why Auto-Enrollment Will Save Your Retirement

    Savers need all the help they can get, even if it amounts to an offer they can't refuse. That's why the biggest improvement to 401(k)s is auto-enrollment.
  6. Professionals

    Retirement Planning Essentials for Your Clients

    You may have heard these retirement planning tips before, but has your client actually put them into action yet?
  7. Professionals

    Which Robo-Advisor is Right for You?

    Which robo-advisor is right for you? There are many factors to consider, including breadth of services, ease of use and cost.
  8. Investing Basics

    This Investment Strategy Could Be Your key To Success

    Goal-based investing seems like an obvious tactic. But many investors have only a vague idea what their goals are, much less how to achieve them.
  9. Taxes

    Before You Visit Your Tax Preparer: Do This

    The earlier you start preparing your tax records and documents, the more likely you are to have a smooth tax return experience – and all the tax benefits you're due.
  10. Entrepreneurship

    10 Tax Benefits For The Self-Employed

    Running your own business has both personal and financial perks.

You May Also Like

Hot Definitions
  1. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  2. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  3. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  4. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
Trading Center