How Much Are Required Minimum Distributions?
Your required minimum distribution is determined by your account balance, age, and specific IRS rules that apply to your personal situation.
A Required Minimum Distribution (RMD) is an annual withdrawal individuals must take from most retirement savings accounts. Federal law mandates these distributions to ensure tax revenue is collected on funds that have grown tax-deferred. The rules require account holders to draw down their savings, preventing the funds from being passed through generations without being taxed.
Identifying Accounts and Required Starting Dates
RMDs apply to most tax-deferred retirement plans. These include:
- Traditional, SEP, and SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- Governmental 457(b) plans
Roth IRAs do not have lifetime RMD requirements for the original owner.
The starting date for withdrawals is the Required Beginning Date (RBD). Under the SECURE 2.0 Act, the starting age is 73 for individuals born between 1951 and 1959. For those born in 1960 or later, the age increases to 75.
You can take your first RMD in the year you reach the required age or delay it until April 1 of the following year. Delaying means you must take two distributions in that second year, which could have tax implications. All subsequent RMDs must be taken by December 31.
Calculating the RMD for Account Owners
To calculate your RMD, divide your account balance from December 31 of the previous year by a life expectancy factor from the IRS. The account balance can be found on your year-end statement from the financial institution. The life expectancy factor for most account owners is found in the IRS’s Uniform Lifetime Table.
For example, a 75-year-old has a life expectancy factor of 24.6. If their IRA balance was $600,000 on December 31 of last year, their RMD would be $24,390.24 ($600,000 / 24.6). This is the minimum amount that must be withdrawn for the year.
A different table, the Joint Life and Last Survivor Expectancy Table, is used if the account owner’s sole beneficiary is a spouse who is more than 10 years younger. This table results in a smaller annual RMD, reflecting the couple’s longer joint life expectancy.
If you have multiple IRAs, you must calculate the RMD for each one separately. However, you can withdraw the total combined RMD amount from any one or a combination of those IRAs. This flexibility does not apply to 401(k) or 403(b) plans, where the RMD for each account must be withdrawn from that specific account.
RMD Rules for Beneficiaries
The rules for inherited retirement accounts depend on the beneficiary’s relationship to the original owner. A surviving spouse who is the sole beneficiary can treat the inherited IRA as their own by rolling it over into a personal IRA. This allows them to calculate future RMDs based on their own age.
Most non-spouse beneficiaries are subject to a 10-year rule, requiring the entire account balance to be withdrawn by the end of the 10th year after the owner’s death. If the owner died before their RBD, the beneficiary only needs to empty the account by the 10-year deadline. If the owner died on or after their RBD, the beneficiary must also take annual distributions for years one through nine.
Certain individuals, known as Eligible Designated Beneficiaries (EDBs), are exempt from the 10-year rule. This category includes:
- The surviving spouse
- Minor children of the account owner
- Disabled or chronically ill individuals
- Beneficiaries not more than 10 years younger than the deceased owner
EDBs can take distributions over their own life expectancy, calculated using the IRS Single Life Table. For minor children, this exception ends when they reach the age of majority, at which point the 10-year rule applies.
Taxation and Penalties for RMDs
Distributions from pre-tax retirement accounts, such as Traditional IRAs and 401(k)s, are treated as ordinary income for the year they are received. The withdrawal is taxed at the individual’s standard federal and state income tax rates.
Failing to take the full RMD results in a penalty. The SECURE 2.0 Act sets this penalty at a 25% excise tax on the amount of the shortfall. For instance, if an RMD was $20,000 and only $5,000 was withdrawn, the penalty would be 25% of the $15,000 difference, or $3,750. This penalty can be reduced to 10% if the mistake is corrected in a timely manner.