How to Determine Your Required Minimum Distribution (RMD)
Understand the process for your Required Minimum Distribution. This guide provides the clarity needed to accurately calculate your 2024 withdrawal and stay compliant.
A Required Minimum Distribution (RMD) is a mandatory withdrawal you must take from certain tax-deferred retirement accounts once you reach a specific age. The federal government establishes these rules to ensure it can collect tax revenue on money that has grown tax-free for years. These distributions are considered taxable income in the year they are withdrawn, except for any portion that was made with after-tax contributions.
Determining if an RMD is Required
The first step is to determine if you are legally obligated to take a withdrawal. Recent legislation, the SECURE 2.0 Act, has adjusted the age at which these distributions must begin. For the 2024 tax year, if you turn 73, you are required to start taking RMDs. This means individuals born in 1951 will be taking their first RMD for the 2024 tax year. Those who reached age 72 in 2022 or earlier must continue taking their RMDs as scheduled.
The RMD requirement applies to a specific set of tax-advantaged retirement accounts, including:
- Traditional Individual Retirement Arrangements (IRAs)
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- Governmental 457(b) plans
If you are still working for the employer that sponsors your 401(k) plan and are not a 5% owner of the company, you may be able to delay RMDs from that specific plan until you retire.
Certain accounts are exempt from the RMD rules for the original account owner. The Roth IRA, for example, does not require any withdrawals during the owner’s lifetime. Beginning in 2024, a change from the SECURE 2.0 Act also exempts designated Roth accounts within employer-sponsored plans, like a Roth 401(k), from the annual RMD requirement for the employee.
Information Needed for the RMD Calculation
To calculate your RMD, you must gather two pieces of information. The first is the fair market value of your retirement account as of the end of the previous year. For your 2024 RMD, you will need the account balance from December 31, 2023. This figure is found on the year-end statement provided by the financial institution or brokerage firm that holds your account.
The second piece of information is a life expectancy factor provided by the IRS. This factor is based on your age at the end of the distribution year. For your 2024 RMD, you will use your age as of December 31, 2024. Most retirement account owners will use the Uniform Lifetime Table to find their factor. This table is the standard for unmarried account owners, married owners whose spouse is not more than 10 years younger, and married owners whose spouse is not the sole beneficiary.
A different table, the Joint Life and Last Survivor Table, is used in a specific situation: for account owners whose sole beneficiary is a spouse who is more than 10 years younger. This table results in a smaller RMD, allowing more money to remain in the account for a longer period.
Step-by-Step RMD Calculation
The RMD formula is your prior year-end account balance divided by the life expectancy factor from the appropriate IRS table. You are always permitted to withdraw more than the RMD, but any amount over the minimum will still be treated as taxable income.
If you have multiple IRAs, you must calculate the RMD for each one separately but can aggregate the total RMD amount and withdraw it from any one or combination of your IRAs. For employer plans like 401(k)s, the RMD must be calculated and taken from each plan individually.
For example, using the current IRS Uniform Lifetime Table, a 73-year-old has a distribution period of 26.5 years. An individual who is 74 has a factor of 25.5, and a 75-year-old has a factor of 24.6.
As a practical example, assume you will be 74 years old by the end of 2024 and your Traditional IRA balance was $200,000 on December 31, 2023. Your life expectancy factor from the Uniform Lifetime Table is 25.5. Your RMD for 2024 would be calculated as $200,000 divided by 25.5, which equals $7,843.14.
Deadlines and Penalties for 2024
The deadline to take an RMD is December 31 of each year. However, there is a one-time extension for your first RMD, allowing you to delay that initial withdrawal until April 1 of the following year. For someone turning 73 in 2024, this means you can wait until April 1, 2025, to take your 2024 RMD.
While this provides flexibility, it has a notable tax consequence. If you delay your first RMD into the next year, you will have to take two distributions in that year—the delayed first-year RMD and the standard RMD for the current year—which could result in a higher overall tax bill by pushing you into a higher income tax bracket.
Failing to take your full RMD by the deadline results in a penalty. The SECURE 2.0 Act reduced this penalty from 50% to 25% of the amount that was not withdrawn. For example, if you were required to take out $8,000 and only took $3,000, the penalty would be 25% of the $5,000 shortfall, or $1,250.
The law also provides a way to reduce this penalty. If you realize the error and withdraw the RMD shortfall in a timely manner, the penalty can be lowered from 25% to 10%. A timely correction means taking the distribution and filing Form 5329 by the end of the second year after the RMD was missed. The IRS can also waive the penalty if you can show that the shortfall was due to a reasonable error and that you are taking steps to remedy the situation.