Required Minimum Distributions (RMDs) are the minimum amounts that retirement plan account owners must withdraw annually starting at a specific age. The IRS mandates these withdrawals to ensure that individuals eventually pay taxes on the tax-deferred savings they built up during their working careers. Navigating RMD rules is essential for retirees who want to plan their annual income and avoid severe tax penalties.
The age at which you must begin taking RMDs has increased in recent years due to federal legislation (the SECURE Act and SECURE 2.0). If you turned 72 in 2022 or earlier, your RMD age was 72. If you reach age 72 in 2023 or later, your RMD age is 73. For individuals who turn 74 in 2033, the RMD starting age will increase to 75. Knowing your specific starting age is crucial for setting up your distribution timeline.
To plan your basic retirement accounts before RMD age, see our Traditional IRA calculator or check our Roth IRA calculator.
RMD rules apply to most employer-sponsored retirement plans, including Traditional 401(k), 403(b), and 457(b) plans, as well as Traditional IRAs, SEP IRAs, and SIMPLE IRAs. Roth IRAs are notably exempt from RMD rules during the lifetime of the original owner. However, inherited Roth IRAs are subject to RMD requirements under certain conditions.
To calculate pension incomes and employer savings matches, see our pension calculator or check our 401k match calculator.
Your RMD is calculated by dividing your tax-deferred account balance as of December 31 of the previous year by a life expectancy factor provided by the IRS. Most retirees use the IRS Uniform Lifetime Table to find their divisor. If your spouse is more than 10 years younger than you and is the sole beneficiary of the account, you use the Joint Life Expectancy Table, which yields a smaller required withdrawal.
To estimate other retirement income streams, check our social security benefit calculator or explore overall wealth goals using the retirement planner.
Failing to withdraw the required amount by the IRS deadline carries a severe penalty. Historically, the penalty was 50% of the amount that should have been withdrawn but was not. Under SECURE 2.0, this excise tax has been reduced to 25%, and it can be further reduced to 10% if the error is corrected in a timely manner.
Retirees who do not need their RMD funds for living expenses can transfer up to $100,000 annually directly from their Traditional IRA to a qualified charity. This is called a Qualified Charitable Distribution (QCD). The QCD counts toward your annual RMD requirement but is excluded from your taxable income, saving you money on taxes.
If you have multiple Traditional IRAs, you must calculate the RMD for each account separately, but you can withdraw the total combined RMD amount from any single IRA or combination of IRAs. However, if you have multiple 401(k) plans, you must calculate and withdraw the RMD from each specific plan separately.