A required minimum distribution (RMD) is the minimum amount of money you must withdraw from employer-sponsored retirement accounts each year once you reach a certain age, depending on when your 72nd or 73rd birthday falls. The IRS imposes these rules to ensure people don’t keep money in tax-deferred accounts indefinitely without paying taxes on it. Retirement accounts subject to RMD rules typically include:
- Traditional IRAs
- Simplified Employee Pension IRAs
- Simple IRAs
- Employer-sponsored retirement plans like 401(k), 403(b), and 457(b) plans
How does the IRS calculate RMD?
Your RMD for a given year is calculated by dividing the account balance as of December 31 of the previous year by a “life expectancy factor” provided by the IRS in its Uniform Lifetime Table (or other tables if your spouse is your sole beneficiary and 10+ years younger than you). Most financial institutions will calculate your RMD for you.
Must I pay taxes on my RMDs?
Yes. They’re taxed as ordinary income in the year you withdraw the funds, since the initial contributions are typically made with pre-tax dollars.
What’s the penalty for not withdrawing the minimum required amount?
If you don’t take the full RMD amount by the deadline, you’ll pay an excise tax penalty, which is 25% of the amount not withdrawn. You can reduce that penalty to 10% if you correct the RMD within two years. You must complete a Form 5329 (here are the instructions) and attach a letter of explanation to qualify for this 15% relief.
When must I withdraw money from employer-sponsored retirement plans?
Except for the first year, you must complete your RMD by December 31. In that first year, however, you have two options:
- You can withdraw your RMD the year you reach the required age.
- You can delay withdrawing your RMD until April 1 of the following year. But if you choose this option, you must take two RMDs in that subsequent year: your first (delayed) RMD by April 1st and your second (for that calendar year) by December 31st. All future RMDs should happen annually by December 31.
This second option is a little complicated, so here’s an example:
Iris celebrates her 73rd birthday on July 3, 2025. She can either withdraw her initial RMD by December 31, 2025, or postpone that first withdrawal until April 1, 2026. If she defers, she must take a second RMD by December 31, 2026. By 2027, she’ll withdraw her RMD at least once a year, no later than December 31 of each consecutive calendar year.
So why might someone choose to defer their first RMD? Perhaps they don’t need the funds immediately, or it’s part of a broader tax planning strategy with their accountant. Also, some retirement plans permit a deferred start date for RMDs if you’re still actively employed beyond the standard RMD age.
A caveat: If you choose to defer your first RMD and take two distributions in the same year (April and December), discuss the tax implications of both withdrawals in one calendar year with your accountant or financial planner.
Can I withdraw more than the RMD?
You may always withdraw more than the RMD, just not less. If you withdraw an additional amount one year, you’re not required to withdraw more than the RMD in subsequent years, either. However, withdrawing extra in one year doesn’t mean you can withdraw less than the RMD the following year. Remember that you willpay taxes on the total withdrawn amount, depending on your individual tax bracket.
If I’m still working, am I required to take my RMD?
If you’re still working and contributing to a 401(k) or 403(b) or other retirement plan through your current employer, you may be able to postpone RMDs from that specific plan until April 1 of the year after you’ve retired.
For all other tax-deferred accounts (except Roth IRAs), you must take your RMD once you reach your required beginning date.
If I have multiple retirement accounts, can I take just one RMD?
The short answer? It depends.
- 401(k): If you have multiple 401(k)s because you’ve worked for various employers throughout your career, you must withdraw RMD for each one. However, you can potentially roll over multiple 401(k)s into a single account, streamlining your management and RMDs. Check with your financial planner if you opt for this strategy.
- IRAs: While you must calculate each IRA’s RMD separately, you can take the total IRA RMD from one account or multiple accounts. The amount you withdraw must be equal to or greater than the RMD total.
Can I roll my RMD into a different tax-deferred account?
No. The IRS excludes RMDs from distributions that can be rolled into another retirement account, like an IRA or 401(k). Because an RMD’s purpose is to ensure that you eventually pay taxes on money that’s been growing tax-deferred, the IRS considers your RMD as taxable income for the year you withdraw it.
Do I have to take an RMD on a Roth IRA?
You’re not required to take RMDs from a Roth IRA during your lifetime since the contributions were made with post-tax dollars. However, beneficiaries who inherit a Roth IRA are typically subject to RMD rules.
Does my RMD amount remain the same each year?
No. Two key factors used to calculate the RMD fluctuate, including your account balance and your life expectancy. Expect your RMD amount to change each year based on the account value and your age.
Example of an RMD
Benjamin turned 74 this year. His IRA’s balance was $205,000 as of December 31, 2024. To calculate his RMD for 2025, Benjamin divided the prior year-end balance by the “distribution period” in the IRS table. The current distribution period for a 74-year-old is 25.5. Bob would calculate his RMD:
425,000 (prior year-end balance) ➗ 25.5 (distribution period = $16,667 (approximate RMD)
The IRS uses different tables for specific situations—a beneficiary who has inherited an account or an account holder whose sole beneficiary is at least 10 years younger than they are. Most financial institutions will calculate your RMD for you.
If you have other questions about how an RMD works, ask your accountant or financial planner.
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