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Minimum Required Distribution

GMAT-LNC6YH

Tax-deferred retirement accounts (like traditional IRAs and 403(b)s) specify that mandatory withdrawals must begin shortly after the account holder turns 70 years old. There is no maximum limit on withdrawals, but the minimum required distribution (a withdrawal) is calculated based on the table below. Failure to withdraw the minimum required distribution (MRD) can result in a tax penalty of as much as 50% of the amount that should have been withdrawn.

To determine the MRD, the balance of the account is divided by the MRD quotient for the age of the account holder.

Decide whether the following statements are true or false about this scenario.

Age MRD quotient Age MRD quotient
70 27.4 86 14.1
71 26.5 87 13.4
72 25.6 88 12.7
73 24.7 89 12.0
74 23.8 90 11.4
75 22.9 91 10.8
76 22.0 92 10.2
77 21.2 93 9.6
78 20.3 94 9.1
79 19.5 95 8.6
80 18.7 96 8.1
81 17.9 97 7.6
82 17.1 98 7.1
83 16.3 99 6.7
84 15.5 100 6.3
85 14.8 101 5.9

True

False

True

False

A 72-year old with an account balance of \$214,000 has a smaller MRD than an 83-year old with an account balance of \$150,000.

True

False

Taking an MRD of 12.0 is equivalent to a decrease of 12% in the account balance.

True

False

An 80-year old does not take the MRD and ends up with the maximum tax penalty of \$2,129. Therefore, his account balance must have been more than \$70,000.