This calculator follows the latest IRS rules and life
expectancy tables which were finalized on April 16th, 2002. These new IRS
regulations were optional in 2002 but became mandatory as of January 1st, 2003.
This calculator was last updated January, 2005 to ensure compliance with IRA
rules and regulations. If you have questions, please consult with your own tax
advisor regarding your specific situation.
Life expectancy calculations
Life expectancy is usually determined
using the Single Life Expectancy table and the beneficiary's age on 12/31 of
the year following the owner's death. However, if this is not the first year of
distribution for the beneficiary, there is an additional step. First, we find
the original life expectancy using the Single Life Expectancy table and the
beneficiary's age on 12/31 of the year following the owner's death. Then, the
current life expectancy is calculated by subtracting one for each year that has
passed, from the original life expectancy. Likewise, in all future years, the
remaining life expectancy is calculated by subtracting one for each additional
year that has passed. It is not allowed to lookup or "recalculate" a new
starting life expectancy after distributions have begun.
If the account owner was younger than the beneficiary, and it was past the
required begin date for distributions when the account owner died, the
beneficiary can choose to use the account owner's life expectancy to calculate
Required Minimum Distributions (RMD). In this special case, the result will
always produce a lower RMD. If this situation occurs, this calculator will use
the account owner's age when calculating RMDs. Other than using the account
owner's age at death, the calculation is identical to the one stated above.
A final option, used by this calculator, is the ability for a spouse to take an
inherited account and treat it as his or her own. In this case, no
distributions are required until the year in which the spouse reaches age 70
1/2. When distributions do begin, the spouse can use the Uniform Lifetime
Table, which produces longer life expectancies than the Single Life Expectancy
table, to determine the applicable life expectancy. In addition, a spouse is
able to "recalculate" or lookup a new life expectancy from the Uniform Lifetime
Table each year. This produces the lowest RMD in all but the most unusual
situations. This calculator will always assume that a spouse will wish to treat
an inherited IRA as their own.
Account balance as of 12/31 of year prior to distribution year
This is
the fair market value of your account as of the close of business on December
31st of the preceding year.
Account owner's age at death
If the account owner is younger than the
beneficiary and the account owner dies after the required begin date, we use
the account owner's life expectancy to calculate RMDs for the beneficiary. This
will lower the RMD for non-spouse beneficiaries.
Beneficiary age as of 12/31 of the year following the owner's death
This
is the age of the beneficiary as of December 31st of the year following the
account owner's death. For example, if the account owner died in March of 1999,
you would need to enter the beneficiary's age as of December 31, 2000.
Beneficiary age as of 12/31 of the distribution year
This is the
beneficiary's age as of December 31st of the distribution year.
Estimated rate of return (provides an estimate of future RMDs)
This is
the expected rate of return on your account. This is only used to help project
your future account balances (which of course will impact your required minimum
distribution). The actual rate of return is largely dependant on the type of
investments you select. From January 1970 to December 2004, the average
compounded rate of return for the S&P 500, including reinvestment of dividends,
was approximately 11.5% per year. During this period, the highest 12-month
return was 64%, and the lowest was -39%. Savings accounts at a bank pay as
little as 1% or less. It is important to remember that future rates of return
can't be predicted with certainty and that investments that pay higher rates of
return are subject to higher risk and volatility. The actual rate of return on
investments can vary widely over time, especially for long-term investments.
This includes the potential loss of principal on your investment.
Is account owner beneficiary's spouse?
If the original account owner
was your spouse, and you were the sole beneficiary, then you have the ability
to treat the inherited account as if it were your own. This is the most
flexible and usually the best choice for this type of beneficiary. This
calculator assumes that this is an option you would like to take. If you check
this box, normal account owner distribution rules apply, including, but not
limited to, minimum distributions not being required until you reach age 70 ½.
Is beneficiary's birthday after June 30th?
Check this box if the
beneficiary's birthday is after June 30th (note: this only applies to spousal
beneficiaries). This is a factor in determining whether the IRS requires
spousal inherited accounts to begin distributions when you are age 70 or 71.
For calculating your first year's distribution, the IRS specifically states to
use your age on your birthday in the year you turn 70 1/2. For example, if your
birthday is between January 1st and June 30th, the first year of distribution
would be at age 70. If your birthday is between July 1st and December 31st, the
first year of distribution would be at age 71.
Did account owner die after Required Begin Date?
Check this box if the account owner died after they were required to start
receiving distributions.
Information and interactive calculators are made available to you as self-help
tools for your independent use and are not intended to provide investment
advice. We can not and do not guarantee their applicability or accuracy in
regards to your individual circumstances. All examples are hypothetical and are
for illustrative purposes. We encourage you to seek personalized advice from
qualified professionals regarding all personal finance issues.
