Calculating Required Distributions From Your Retirement Accounts

Your plan administrator may calculate the distribution and send you the money automatically.

I’m 71 and need to take my required minimum distribution from my former employer’s 401(k) by the December 31 deadline. Do I have to calculate how much to withdraw, or will the plan do it automatically and send me the money? If the plan does it, do I have a say in which investments to sell?

Some 401(k) administrators do calculate the required minimum distribution for plan participants each year, based on their IRS life expectancy and account balance at the end of the previous year. They also send you the money automatically if you haven’t withdrawn it already.

T. Rowe Price, for example, calculates how much you must take each year and processes the distribution in late December. It keeps track of distributions you’ve already received from the account throughout the year, and if you haven’t withdrawn enough it sends you any amount necessary to make up the difference. Other administrators distribute the money automatically only if you’ve signed up for the automatic-withdrawal option. Ask your 401(k) administrator about its procedures.

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How investments are tapped also varies by administrator. Some take a portion of the money from each mutual fund that your 401(k) is invested in unless you specify otherwise. Some, including T. Rowe Price, leave it to individual employers to decide how investments are tapped for their plan -- unless you specify otherwise.

If you keep a large sum in a stable value or money market account for your retirement expenses, it’s important to make sure that your administrator will take the withdrawals from the appropriate account rather than from more-volatile mutual funds. That way, you won’t have to worry about selling at a loss to cover your required distributions.

Required distributions from traditional IRAs have slightly different rules. With 401(k)s, you must calculate the required distribution for each account and make separate withdrawals from each account (that makes it easier for administrators to know how much to withdraw automatically). With IRAs, however, you calculate the required distributions from each account, but you may take the money from any of your accounts.

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.