Retirement Accounts

Everything You Need To Know About Required Minimum Distributions (RMDs)

When you reach your 72nd birthday, you need to take money from your IRA or 401(k) accounts, known as Required Minimum Distributions.

Stephanie Faris

Stephanie Faris

Published November 7th, 2020

Updated March 8th, 2024

Table of Contents

Key Takeaways

After retirement, you’ll eventually need to start taking money out of your traditional IRA, 401(k), and 403(b) accounts, known as Required Minimum Distributions.

As of 2020, the age for mandatory RMDs has been increased from 70½ to the April 1st following turning 72.

The IRS has a worksheet that will help you calculate your RMD, but it’s a simple formula.

A penny saved is a penny earned. If you save all your life for retirement, it stands to reason that eventually you’ll use that money, but did you know there are rules around when and how much money you need to take out of your retirement accounts? At some point before the first April 1st after you turn 72, you have to at least put those funds in your own personal savings, thanks to laws mandating distributions.

Known as Required Minimum Distributions, or RMDs, these withdrawals will make tax time a little costlier once you hit your 70s. By understanding the requirements, you can prepare in advance.

What Are RMDs (Required Minimum Distributions)?

Required Minimum Distributions (RMDs) are government-mandated withdrawals that individuals must start taking from their retirement accounts, such as 401(k)s, 403(b)s, and traditional IRAs, once they reach a certain age. These withdrawals are essential for retirement planning, as they ensure that the funds saved in tax-advantaged retirement accounts are eventually taxed during the account holder's retirement years.

Required Minimum Distributions apply to traditional IRAs, 401(k)s, and 403(b)s. Roth accounts don’t have RMD rules because you’ve already paid taxes on your contributions.

The time to think about your retirement accounts is before the end of each year. According to new rules laid out in the 2019 SECURE Act, you’ll need to withdraw the minimum amount before the first April 1st after you turn 72 to avoid a 50% penalty at tax time. This penalty is in addition to the taxes you’ll have to pay on the amount you should have taken out.

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The problem, for many retirement account holders, is that it can be tough to know just how many accounts you have hanging around, waiting to come back to haunt you. You may have inherited an IRA you forgot about at some point, or you might simply have a 401(k) or 403(b) with a long-ago employer that slipped your mind. Whatever the case, you’ll need to track down all those accounts before you reach the IRA, 401(k), and 403(b) withdrawal age to avoid the penalty.

Once you’ve gathered information on all your accounts, set up automatic withdrawals to ensure you never have to pay that penalty. It may be easier to roll your accounts into one, though you should note that you only get one tax-free indirect IRA rollover per year and plan accordingly. Most investment brokerages can work with you to make this process as easy as possible, such as scheduling automatic IRA distributions by bank transfer or a mailed check. You can set your account up to send the payments annually, monthly, or following a schedule you set up.

How Do You Calculate RMDs?

Calculating the minimum amount you need to take from your accounts is fairly simple. The easiest way is to use the tables provided with each year’s tax forms. Last year’s worksheets are based on the 70½-year RMD IRA, 401k, and 403(b) withdrawal ages, but the basic concept is the same.

To calculate how much to withdraw before the end of this year, you’ll need to first know your balance as of December 31st of the previous year. You’ll then consult a table, provided on the worksheet, to get your exact distribution period, which is based on your age. You’ll divide the distribution period number from your balance to get your required minimum distribution for the year.

So if you’re 72 and claiming a distribution on your taxes for last year, you’ll divide your account balance by 25.6. If your balance was $10,000, you would have been required to withdraw at least $390.63 from your taxable retirement fund and claim that amount on your taxes.

Although there are 401(k), IRA, and 403(b) minimum distribution amounts, there are no maximums. You can empty out the entire account once you reach the age of 59½ without penalty. But those withdrawals will be taxed as ordinary income, so plan carefully before taking withdrawals.

When Do You Take Your RMD?

If you were under the age of 70½ on January 1, 2024, you have a little extra time. The Setting Every Community Up for Retirement Enhancement Act of 2019, also known as the SECURE Act, changed the required age of RMD to 72. You won’t have to start taking distributions until April 1st of the year after you reach the age of 72, letting you file taxes a couple more times before you have to start taking money out of your retirement accounts.

Although you have to follow the RMD age requirements, that doesn’t mean you can’t reinvest the funds. You can’t roll them into a tax-deferred retirement account to subvert taxes, but you can put them into another savings account, invest them, or use the money to help pay off interest-bearing expenses like your mortgage or car payment.

Bottom Line

Prior to turning 72, you should make sure you’ve accounted for every 401(k), 403(b), and IRA in your name. A mandatory withdrawal or distribution will apply whether you know about the account or not. To make the most of the funds you’re required to take out, we recommend meeting with a Certified Financial Planner®, who can come up with a plan that best matches your lifestyle.

Frequently Asked Questions

What are Required Minimum Distributions (RMDs)?

RMDs are the minimum amounts that the IRS requires you to withdraw annually from your retirement accounts, such as traditional IRAs, 401(k)s, and 403(b)s, once you reach a certain age. These rules are designed to ensure that individuals use their retirement savings during their lifetime and pay taxes on those funds.

At what age do I need to start taking RMDs?

As of the latest guidelines, you must start taking RMDs by April 1 following the year you turn 72. This age was updated from 70½ following the passage of the SECURE Act in 2019.

Which retirement accounts are subject to RMDs?

RMDs apply to traditional IRAs, 401(k)s, 403(b)s, and other defined contribution plans. Roth IRAs do not require withdrawals until after the death of the owner, but Roth 401(k) accounts do require RMDs during the owner's lifetime.

How are RMD amounts calculated?

The amount of your RMD is calculated by dividing the account balance as of December 31 of the previous year by a distribution period from the IRS’s Uniform Lifetime Table. Your age and account balance determine the exact amount you must withdraw each year.

Can I withdraw more than the minimum required amount?

Yes, you can always withdraw more than the RMD amount from your retirement account. However, it’s important to remember that any withdrawal will be considered taxable income, so withdrawing more than necessary could increase your tax liability.

Are there any exceptions to the RMD rules?

Yes, there are some exceptions. For example, if you are still working and do not own more than 5% of the business you work for, you might be able to delay RMDs from your current employer’s 401(k) until retirement. Also, the first RMD allows a slight delay until April 1 of the year following the year you turn 72, but subsequent RMDs must be taken by December 31 each year.

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Stephanie Faris
Stephanie Faris

Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a writer for a credit card processing service and has written about finance for numerous marketing firms and entrepreneurs. Her work has appeared on Money Under 30, The Motley Fool, MoneyGeek, E-commerce Insiders, and GoBankingRates.

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Retirement Income Guide

Decumulation


Paycheck


Lifestyle Planning


Income Sources


Strategies


Taxes


Risks


Share this advice


Stephanie Faris
Stephanie Faris

Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a writer for a credit card processing service and has written about finance for numerous marketing firms and entrepreneurs. Her work has appeared on Money Under 30, The Motley Fool, MoneyGeek, E-commerce Insiders, and GoBankingRates.

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Still have questions about how to properly plan for retirement? Speak with a licensed fiduciary for free.

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Legal

Retirable, Inc. ('Retirable') is an SEC registered investment advisor. By using this website, you accept our Terms and Conditions and Privacy Policy. Retirable provides holistic retirement planning services, which are available only to residents of the United States. You must be at least 18 years of age to become a Retirable Premium user. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities.

Investing involves risk and past performance is not indicative of future results. Increased spending increases the risk of depleting your savings and performance is not guaranteed. It is very important to do your own analysis before making any decisions based on your own personal circumstances.

For more information, see our Form ADV Part II and other disclosures.

Retirable is a financial technology company, not a bank. Banking services provided by Blue Ridge Bank N.A., Member FDIC. FDIC insurance is available for funds on deposit up to $250,000 through Blue Ridge Bank N.A., Member FDIC. The Retirable Visa® Debit Card is issued by Blue Ridge Bank N.A. pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted.

* Annual Percentage Yield (APY) of 5.12% is effective as of Aug 1, 2023. This is a variable rate and may change after the account is opened. Fees could affect earnings on the account.

** Refer to the fee schedule in your Consumer Deposit Account Agreement

© 2024 Retirable Inc. All rights reserved.

We're accredited and certified by