Accrued Interest & Calculating RMD

Once you are 70 1/2 years old, the Internal Revenue Service mandates required minimum distributions from tax-deferred plans like 401(k)s and IRAs. The amount of the RMD each year is based on your expected lifespan according to IRS actuarial tables and on the balance in the account. You have to include accrued interest when figuring RMD. Accrued interest is interest earned by securities like bonds that has not been paid to you yet.

Figure Account Balance for RMD

According to the IRS, you must use the adjusted market value of the assets in a tax-deferred account as of December 31 to calculate RMD. Adjusted market value is the amount you would get if you sold the asset. For bonds, this is the market price plus accrued interest. Suppose your IRA or 401(k) includes $20,000 in bonds paying 7 percent interest. Bond interest is typically paid every six months. Three months have passed since the last payment. Six months of interest comes to $700, so three months worth equals $350. In this example, you have to add $350 to the $20,000 market price of the bonds to figure the amount to use for calculating RMD. You’ll then use the IRS actuarial table entry for your age and marital status to compute how much of the $20,350 you must withdraw.