# Q&A: "I am 70 Years Old. I Have $180,000 to Invest from an IRA. How Much Will I Have to Take Out at 70 1/2?"

Retirement Accounts Retirement Income Tax**Question:** I am 70 Years Old. I Have $180,000 to Invest from an IRA. How Much Will I Have to Take Out at 70 1/2?**Larry's answer:** There are several moving parts and important cautions, so let's walk through it....

Your first Required Minimum Distribution (RMD) begins in the year you turn age 70.5. In the first year only, you get a choice...either (1) take your first RMD in that year you turn 70.5 or (2) take it by April 1 of the following year, which is referred to as your "Required Beginning Date" (RBD).

But if you choose the second option, you'll have to take *two* RMDs in that year (for the prior and current year). When might it make sense to do that? Usually only if you anticipate significantly higher taxable income in the first RMD year vs. lower taxable income in the following year. "Doubling up" on the RMD pushes the taxable income from the first year into the second year.

Your RMD calculation for any particular year is based on the December 31 balance of your IRA (all your IRAs) for the prior year divided by an IRS table life expectancy factor that corresponds with your age *at the end of the current year*.

For example, let's assume your (only) IRA balance was $180,000 on December 31, 2014 and that you turn 70.5 in March, which means you'll turn 71 by year-end 2015. So we then look up the life expectancy factor from IRS Uniform Lifetime Table III and the factor for age 71 is 26.5.

Note that different IRS tables are used if you're married but your spouse is more than 10 years younger than you (Table II), your spouse is not the sole beneficiary of your IRA (Table II), or you have an inherited IRA (Table I).

Using our example: $180,000 divided by 26.5 = 2015 RMD of $6,792.45.

Then in 2016, you'll use the IRA balance from December 31, 2015 along with the life expectancy factor for your age at year-end 2016. Wash, rinse, repeat.

If you also have a 401(k), 403(b), or similar retirement plan through previous employers, the calculations are essentially the same. But be aware that 401(k) balances can be grouped together for the 401(k) RMD calculation, IRA balances can be grouped together for the IRA RMD calculation, but no mixing balances of plan types is allowed. While there may be reasons to maintain older 401(k) accounts, from an administrative standpoint it's a lot easier to manage and run your RMD calculations if you roll those to an IRA.

Finally, make sure you're confident with RMD calculations or that you work with a qualified advisor or tax professional. There's a 50% penalty tax on any RMD amount not taken (that's not a typo...it's 50%). Uncle Sam has been happy to allow tax deferral all these years, but now wants his pound of flesh...he's going to get it and more if you mess up the calculation.

Hope that helps. All the best!

Originally posted on NerdWallet's Ask an Advisor on January 21, 2015.