- RMDs are withdrawals you have to make from retirement accounts annually.
- RMDs usually start at age 73, but accounting for them much earlier can be useful.
- Failing to take out enough to satisfy RMDs can trigger large tax penalties.
Maximizing the growth of your retirement savings is crucial for a financially secure retirement. While allowing your funds to accumulate for as long as possible is ideal, you'll eventually need to start taking required minimum distributions (RMDs) annually.
As the name implies, an RMD is the minimum amount to be withdrawn from the best retirement plans funded with pre-tax dollars. If you need or want to withdraw more, you can, subject to any other plan rules.
Understanding RMDs
Definition and purpose of RMDs
Required minimum distributions (RMDs) are mandatory withdrawals that retirees must take from their tax-advantaged retirement accounts, as established by the IRS. Generally, RMDs start at age 73, but there may be exceptions under certain circumstances.
The money you take out as an RMD generally counts as taxable income. So, rather than letting your retirement account grow tax-free indefinitely, RMDs prompt you to draw down at least some of your retirement funds. Failure to take your RMDs can result in significant tax penalties.
The purpose of RMDs is to ensure that people can't avoid paying their deferred tax liability on those contributions. It also helps generate tax revenue for the government.
Key points of RMDs
RMDs apply to many of the retirement plans, such as:
These retirement accounts have one thing in common: They are funded with pre-tax dollars, providing plan participants an initial tax break. However, when withdrawing during retirement, investors must pay income tax on their distributions. RMDs ensure you fulfill that tax obligation.
Profit-sharing plans and other defined contribution plans are also generally subject to RMDs.
Roth IRAs and 401(k) are the exemptions. Since Roths are funded with after-tax dollars, plan participants have already fulfilled their tax obligations and do not have any minimum withdrawal requirements during their lifetime. However, certain rules apply to Roth beneficiaries.
When do RMDs start?
The SECURE 2.0 Act recently increased the RMD age from 72 to 73 as of 2023. This change stems from longer lifespans and people spending increased time in retirement. In 2033, the RMD age is scheduled to rise again to 75.
In 2024, the RMD age is 73, but some exceptions apply. For example, if you have an employer-sponsored plan, such as a 401(k), you may be able to wait longer to take your RMDs.
That's because the IRS rules apply when you turn 73 or the year you retire (whichever is later), assuming your plan allows you to keep your assets there. So, it's possible that if you're still working past age 73, your employer-sponsored plan may enable you to delay taking RMDs.
How to calculate your RMD
When calculating RMDs, the amount you must withdraw isn't a fixed number or a percentage. Instead, an RMD is based on two factors:
- The account balance at the end of the previous year
- The distribution period, as determined by the Internal Revenue Service
Simply divide the account balance by the distribution period to complete the calculation.
IRS Uniform Lifetime Table 2024
The IRS Uniform Lifetime Table is the most commonly used standard calculation table for calculating distribution periods.
Distribution periods are related to life expectancy, so your required amount will be higher when you start having to take RMDs. As you age, the distribution period decreases, meaning a larger proportion of your retirement account balance must be withdrawn.
| Age | Distribution period |
| 72 | 27.4 |
| 73 | 26.5 |
| 74 | 25.5 |
| 75 | 24.6 |
| 76 | 23.7 |
| 77 | 22.9 |
| 78 | 22.0 |
| 79 | 21.1 |
| 80 | 20.2 |
| 81 | 19.4 |
| 82 | 18.5 |
| 83 | 17.7 |
| 84 | 16.8 |
| 85 | 16.0 |
| 86 | 15.2 |
| 87 | 14.4 |
| 88 | 13.7 |
| 89 | 12.9 |
| 90 | 12.2 |
| 91 | 11.5 |
| 92 | 10.8 |
| 93 | 10.1 |
| 94 | 9.5 |
| 95 | 8.9 |
| Full table continues until age 120 |
Source: IRS website
For example, the Uniform Lifetime Table for 2024 shows that the distribution period for someone who is 75 is 24.6. So, if a 75-year-old wanted to calculate their RMD based on a $1 million IRA balance, they would divide $1 million by 24.6, which equals $40,650.41. An 85-year-old would use a factor of 16, producing an RMD of $62,500 based on the same $1 million balance.
RMD deadlines and penalties
RMD annual deadline
You don't have to take an RMD as soon as you turn 73. Rather, you have until April 1 of the following year from when you turn that age. After that, you must take your RMD by December 31 each year. That can mean you take two RMDs in the first calendar year you start making these withdrawals.
Penalty for failure to take RMD
If you don't withdraw enough to satisfy your RMD each year, you could have to pay an additional tax that equals 50% of the gap between what you withdrew and your RMD.
That said, there can be ways to avoid this penalty. For example, you could file Form 5329 and include an explanation as to why a reasonable error was made and how you're fixing this error.
Special considerations for RMDs
RMDs for multiple accounts
People with multiple retirement accounts, including most employer-sponsored plans, must calculate RMDs for each account separately. In some cases, such as with a 403(b), you might be able to calculate for each but take the joint sum out of only one account. That way, one account can continue growing untouched.
Qualified charitable distributions (QCDs)
Making a qualified charitable distribution (QCD) from an IRA may allow you to satisfy your RMD without putting the money into your own accounts. That way, you could avoid increasing your taxable income for the year.
Not everyone necessarily has the financial ability to donate their full RMD amount, but it's an option to think about as part of your overall tax and retirement planning. Accounting for these RMDs before you have taken them can go a long way toward improving your finances.
FAQs about RMDs
If you don't need the RMD income, you can donate the full RMD or a partial amount as a qualifiable charitable donation (QCD) to a charity of your choosing. This way, you can lower your taxable income for the year.
Yes. You can take more than your RMD if you wish. RMDs are the minimum required, so you have the flexibility to withdraw more.
RMDs are taxed as annual income at your normal tax rate. Since the contributions to a traditional 401(k) or IRA are tax-deferred, you must pay tax on the distributions during retirement. RMDs are no different.
