Do 401(k)s Have RMDs? An Explanation of the Rules
Understand the mandatory withdrawal rules for your 401(k). Learn how timing, employment status, and account type impact your required distributions.
Yes, 401(k) plans are subject to Required Minimum Distributions (RMDs). These are mandatory withdrawals from most retirement accounts once the owner reaches a certain age. The purpose of these rules is to ensure that individuals eventually pay taxes on their tax-deferred retirement funds. This prevents these accounts from being used indefinitely as a tax shelter or solely as an estate planning tool.
The RMD rules apply to employer-sponsored retirement plans like 401(k)s, 403(b)s, and 457(b)s, and also to traditional, SEP, and SIMPLE IRAs. Understanding these rules is part of managing retirement income.
Determining Your RMD Start Date
The age you must begin taking RMDs is determined by your birth year. As a result of recent legislative changes, the age to begin RMDs is 73 for individuals born in 1951 or later. This was an update from the previous age of 72.
Your first RMD is due by April 1 of the year after you turn 73. For instance, if you turn 73 in 2025, your first withdrawal is due by April 1, 2026. All subsequent RMDs must be taken by December 31 of each year. Delaying your first RMD to the April 1 deadline means you must take two distributions in that calendar year, which could result in a higher tax liability.
An exception exists for individuals who are still employed past their RMD start age. If you are still working for the company that sponsors your 401(k) plan, you can generally delay taking RMDs from that specific plan until you retire. Once you retire, your first RMD from that plan would be due by April 1 of the year following your retirement.
This deferral does not apply to individuals who own 5% or more of the business; they must begin RMDs at age 73 regardless of employment status. The “still working” exception is also plan-specific. It does not allow you to delay RMDs from IRAs or from 401(k) plans held with previous employers.
Calculating the RMD Amount
The calculation for your RMD involves dividing your 401(k) account balance as of December 31 of the preceding year by a life expectancy factor. This factor is found in the IRS’s Uniform Lifetime Table, which is the relevant table for most 401(k) owners.
To illustrate, an individual who is 74 years old with a 401(k) balance of $500,000 on December 31 of the previous year would look up their factor in the Uniform Lifetime Table. The distribution period for a 74-year-old is 25.5. The RMD for the year is calculated by dividing the account balance by this factor: $500,000 / 25.5 = $19,607.84.
The RMD calculation must be performed separately for each 401(k) plan you own, and a separate withdrawal must be taken from each plan. This differs from the rule for IRAs, which allows you to total the RMDs from all your IRAs and take the full amount from just one. Most plan administrators calculate the RMD for you, but it is beneficial to understand the calculation for verification.
Tax Treatment of 401(k) Distributions
The taxability of your RMD depends on the type of contributions made to your 401(k). For traditional 401(k)s, which are funded with pre-tax dollars, the entire amount of the RMD is considered ordinary income. This means it will be taxed at your marginal income tax rate for the year. These withdrawals are added to your other income sources to determine your total taxable income.
The rules are different for Roth 401(k)s. Following recent legislative changes, designated Roth accounts within a 401(k) plan are no longer subject to RMDs for the original account owner. This change aligns the treatment of Roth 401(k)s with Roth IRAs, which are also exempt from lifetime RMDs.
While you are not required to take RMDs from a Roth 401(k), any withdrawals you choose to make are generally tax-free if they are a “qualified distribution.” For a distribution to be qualified, the account owner must be at least 59½ years old, and the Roth 401(k) account must have been established for at least five years.
Consequences of Missing an RMD
Failing to take your full RMD by the annual deadline can result in a penalty. The IRS imposes an excise tax on the amount that was not withdrawn as required. Under the SECURE 2.0 Act, this penalty is 25% of the RMD shortfall. For example, if your required distribution was $20,000 and you only withdrew $5,000, the penalty would be 25% of the remaining $15,000, which is $3,750.
If you realize the mistake and withdraw the RMD shortfall within a defined “correction window,” the penalty is lowered from 25% to 10%. This window generally ends on the last day of the second year following the year the RMD was due.
The penalty may be waived if the failure to take the RMD was due to a reasonable error and you are taking steps to remedy the shortfall. To request a waiver, you must file IRS Form 5329. Along with the form, you must attach a letter explaining the reason for the error.