When you have qualified money, retirement accounts, IRA, 401k, or 403b IRS Guidelines require they begin taking minimum distributions from these funds at age 70 1/2. Required Minimum Distribution (or RMD) is designed to help you calculate the proper minimum distribution based on life expectancy.

When Do They Start?

Tax laws require you to begin receiving minimum distributions from you qualified money by April 1 of the year after you reach age 70 1/2. For example, if 70 1/2 on May 1, 2005, you initial distribution must be taken by April 1, 2006 and be based on the Contract Value as of December 31 of that year. Future distributions must be taken by December 31 of each year.

Changes With Minimum Distribution

The U.S. Treasury Department changed RMD Guidelines effective April 2002. The new guidelines require less money to be distributed each year, which helps reduce the tax liability and allows more to be passed on to the your heirs. The heirs also have more flexibility, allowing them to stretch out minimum distributions of inherited qualified funds based on their life expectancy.

The new guidelines must be used, for retirees turning age 70 1/2 in 2002. The old or new guidelines may be used, if age 70 prior to 2002. It is important to note that three guidelines are for the Minimum Required Distribution. You always have the option to take more than the minimum required.

RMD Calculation Methods

The new 2002 guidelines use one method and base minimum distributions on the life expectancy of the owner only, unless the sole beneficiary is a spouse who is more than 10 years younger. Life expectancy multiples were also expanded under the 2002 guidelines, allowing a smaller required distribution to be taken. In the early years of the clients required distribution to be taken. In the early years of the clients required minimum distributions, it is possible the Contract Value will continue to grow.

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