Question

Donna turned 72 on January 7^th; this is her3rd year of taking RMDs. Her profit-sharing account balance was $100,000 at the end of Year 1; $150,000 at the end of Year 2; and $175,000 at the end of Year 3. Assume that the life expectancy factor based on the uniform lifetime table for someone who is 70, 71, 72, and 73 is 27.4, 26.5, 25.6 and 24.7, respectively. If Donna only takes a distribution of $2,000 for Year 3, then how much is her required minimum distribution penalty?

a. $953

b. $1,024

c. $1,930

d. $2,036

Answer 1

RMD for year 3=Account balance (beginning) /Life expectancy factor for age 72

(Since her birthday is on JAN 7,there there is no chance for her 73^rd birthday in the year. So   life expectancy factor for age 72 is applicable)

RMD for YEAR 3=$150,000/25.6=$5859.375

RMD paid for year thre=$2000

Minimum Distribution penalty=Unpaid amount*50%

                          =(5,859.375-$2000)*50%=$3,859.375*50%=$1929.688

=$1930(when rounding to one)