Do RMDs Apply to 401(k)s? The Rules Explained
Understand the detailed rules for Required Minimum Distributions from a 401(k), including key exceptions for timing and how to manage multiple accounts.
Required Minimum Distributions (RMDs) apply to traditional 401(k) plans. These are mandatory annual withdrawals the federal government requires from most retirement accounts after you reach a certain age. The purpose of these rules is to ensure that individuals spend their retirement savings during their lifetime and don’t use these tax-deferred accounts for estate planning indefinitely. The government wants to eventually collect tax revenue on the money that has been growing tax-deferred.
RMD Starting Age and Deadlines
The age at which you must begin taking RMDs changed due to recent legislation. The SECURE 2.0 Act of 2022 increased the RMD starting age to 73, effective January 1, 2023. This means if you were born in 1951 or later, your RMDs must begin when you turn 73. The law further pushes this age to 75 for individuals born in 1960 or later, with that change taking effect on January 1, 2033.
Your first RMD has a special deadline of April 1 of the year after the year you reach your RMD age. For example, if you turn 73 in 2025, you have until April 1, 2026, to take your first distribution. All subsequent RMDs must be taken by December 31 of each year. Taking your first RMD in the following year means you will have to take two distributions in that single year—the first-year RMD and the second-year RMD—which could have tax implications.
An exception exists for those still employed. If you are still working for the company that sponsors your 401(k) and are not a 5% owner of the business, you can delay taking RMDs from that specific plan until you retire. This “still working” exception applies only to your current employer’s 401(k). It does not permit you to delay RMDs from 401(k)s you hold with previous employers or from any Traditional IRAs you may have.
Calculating Your 401(k) RMD
The calculation for your RMD is based on a formula. You must divide your 401(k) account balance as of December 31 of the prior year by a life expectancy factor provided by the IRS. For most participants, this factor is found in the Uniform Lifetime Table. Your 401(k) plan administrator will often perform this calculation for you and may report the required amount on your statements, which simplifies the process.
For example, if your 401(k) balance was $500,000 at the end of last year and you are 74 years old, you would look up the distribution period for age 74 in the Uniform Lifetime Table. That factor is 25.5. Your RMD for the year would be $500,000 divided by 25.5, which equals approximately $19,608.
A different table may be used in a specific situation. If your sole beneficiary is your spouse and they are more than 10 years younger than you, you can use the IRS’s Joint Life and Last Survivor Table. This table uses the joint life expectancy of you and your spouse, resulting in a smaller RMD and allowing more assets to remain in the account to grow tax-deferred.
Penalties for Missing an RMD
Failing to take your full RMD by the deadline results in a penalty. The IRS imposes an excise tax on the amount of the RMD that was not withdrawn on time. The SECURE 2.0 Act reduced this penalty from 50% to 25% of the shortfall amount.
For instance, if your calculated RMD for the year was $15,000 but you only withdrew $5,000, the shortfall is $10,000. The penalty would be 25% of that shortfall, resulting in a $2,500 tax. This tax is in addition to the ordinary income tax you will eventually pay on the distribution itself.
The law reduces the penalty to 10% if the mistake is corrected within a “correction window,” which is two years. The penalty is reported and paid to the IRS using a specific tax form.
How to Correct a Missed RMD
If you realize you have missed an RMD or did not withdraw the full amount, you should take corrective action. The first step is to withdraw the entire shortfall amount from your 401(k) as soon as you discover the error.
Next, you must file IRS Form 5329, “Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts.” This form is used to report the RMD shortfall and calculate the excise tax owed.
You can also use this form to request a waiver of the penalty. The IRS may waive the penalty if you can show that the shortfall was due to a reasonable error and that you are taking reasonable steps to remedy the situation. To request the waiver, you file Form 5329 and attach a letter of explanation detailing the circumstances and the corrective actions taken.
Special Rules for 401(k) Accounts
Several rules are unique to 401(k) plans. While Roth 401(k)s were previously subject to RMDs, a recent change eliminated this rule. As of 2024, Roth 401(k)s are no longer subject to RMDs for the original account owner, aligning their treatment with Roth IRAs.
Another rule relates to the aggregation of RMDs. The RMD for each of your 401(k) plans must be calculated separately, and the withdrawal must be taken from that specific plan. You cannot total the RMDs from multiple 401(k)s and take the entire amount from just one. This rule is different from IRAs, where you can take the total RMD amount from any combination of your IRAs.
Finally, the rules for beneficiaries who inherit a 401(k) are distinct. For many non-spouse beneficiaries, the law now requires the entire account balance to be withdrawn within 10 years of the original owner’s death. The specific requirements can vary based on the beneficiary’s relationship to the owner and when the owner passed away.