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 Normally, funds withdrawn before age 59 ½ are assessed a 10% early withdrawal penalty. Funds must be withdrawn as substantially equal periodic payments as outlined by Internal Revenue Code Section 72(t) and must continue for five years or until the retiree reaches 59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 If withdrawals are stopped, all funds that have already been withdrawn become subject to early withdrawal penalties.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

    One of three methods by which early retirees of any age can access ...
  2. Fixed Amortization Method

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

    A rule of thumb used to determine the amount of funds to withdraw ...
  6. Sequence Risk

    The risk of receiving lower or negative returns early in a period ...
Related Articles
  1. Retirement

    Can You Afford To Retire Early?

    Early retirement is the hope of many people currently in the workplace. So, how do we get there - and what are the downsides?
  2. Retirement

    How To Choose A Retirement Income Fund

    Retirees looking for income can choose retirement income funds. But in order to pick the right one, you have to look at investments and fees.
  3. 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.
  4. Retirement

    Asset Distributions A Key Consideration For Retirees

    How you distribute qualified retirement plan money can affect your taxes and Social Security benefits.
  5. 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.
  6. 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.
  7. Retirement

    Retirement Withdrawal Tricks You Should Know

    From SEPP to NUA, retirement withdrawal rules are full of complicated acronyms. But understanding them will help with your retirement income strategy.
  8. Retirement

    How to Avoid the 10% IRA Early Withdrawal Penalty

    How to withdraw funds from your traditional IRA before age 59.5 without paying the 10% penalty.
  9. Retirement

    3 Ways To Make Your Retirement Funds Last

    These retirement income distribution methods are all viable; the one you choose will depend on your personal circumstances.
  10. Retirement

    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 ...
Hot Definitions
  1. Dumping

    In international trade, the export by a country or company of a product at a price that is lower in the foreign market than ...
  2. Tender Offer

    An offer to purchase some or all of shareholders' shares in a corporation. The price offered is usually at a premium to the ...
  3. Ponzi Scheme

    A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns ...
  4. Dow Jones Industrial Average - DJIA

    The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange ...
  5. Revolving Credit

    A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is ...
  6. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
Trading Center