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 Normally, funds withdrawn before age 59 ½ are assessed a 10% early withdrawal penalty. Funds must be withdrawn as substantially equal periodic payments as outlined by Internal Revenue Code Section 72(t) and must continue for five years or until the retiree reaches 59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 If withdrawals are stopped, all funds that have already been withdrawn become subject to early withdrawal penalties.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

    The science that describes the management, creation and study ...
  2. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  3. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  4. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  5. Required Minimum Distribution - ...

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
  6. Roth IRA

    An individual retirement plan that bears many similarities to ...
Related Articles
  1. Borrowing From Your Retirement Plan
    Retirement

    Borrowing From Your Retirement Plan

  2. Managing Income During Retirement
    Budgeting

    Managing Income During Retirement

  3. Tips For Moving Retirement Plan Assets
    Taxes

    Tips For Moving Retirement Plan Assets

  4. An Introduction To Correcting Ineligible ...
    Taxes

    An Introduction To Correcting Ineligible ...

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center