Required Minimum Distributions from a 401k

A Required Minimum Distribution (RMD) is a mandatory annual withdrawal from certain retirement accounts, including 401(k)s. The federal government establishes these rules to prevent the indefinite tax-deferred growth of these accounts. The purpose of an RMD is to facilitate the collection of income taxes on money that has grown tax-deferred. Contributions to traditional 401(k)s are made with pre-tax dollars, and the RMD rules ensure the government eventually receives tax revenue from these savings. These regulations apply to employer-sponsored plans and traditional IRAs, but not to Roth IRAs during the original owner’s lifetime.

Determining Your RMD Starting Date

When you must take your first RMD from a 401(k) depends on your birth year, a date known as the Required Beginning Date (RBD). Recent legislative changes under the SECURE 2.0 Act have adjusted the starting ages for these mandatory withdrawals, reflecting increasing life expectancies.

The age to start RMDs is tiered by birth year. For individuals born between 1951 and 1959, the RMD age is 73. For those born in 1960 or later, the starting age increases to 75, effective January 1, 2033. If you were born in 1950 or earlier, you should already be taking RMDs. Your first RMD must be taken by April 1 of the year after you reach your RMD age, with all subsequent RMDs due by December 31 each year.

A provision for 401(k) participants is the “still-working exception,” which allows you to delay RMDs from your current employer’s 401(k) plan if you are still employed past your RMD age. To qualify, you must not own more than 5% of the company, and the 401(k) plan document must permit this delay. This exception is specific to the 401(k) of your current employer and does not apply to IRAs or 401(k)s from previous jobs. Once you retire, your first RMD from that 401(k) is due by April 1 of the year after you separate from service.

Calculating the Required Minimum Amount

You must calculate the amount you are required to take for the year. The calculation follows a standard formula: the prior year-end account balance is divided by a life expectancy factor provided by the IRS. This process ensures that the distributions are spread out over your anticipated remaining lifetime.

The first component is your 401(k) account balance as of December 31 of the preceding year. For example, to calculate your 2025 RMD, you would use the value of your 401(k) on December 31, 2024. This value is reported on your year-end account statement.

The second component is the life expectancy factor, found in the IRS’s Uniform Lifetime Table in Publication 590-B. Most participants will use this table. A different table, the Joint Life and Last Survivor Expectancy Table, is used only if your sole beneficiary is a spouse who is more than ten years younger than you.

To illustrate, consider a retiree who turns 74 in 2025 and had a 401(k) balance of $500,000 on December 31, 2024. The Uniform Lifetime Table shows a life expectancy factor for age 74 is 25.5. The RMD for 2025 would be calculated by dividing the account balance by the factor: $500,000 / 25.5 = $19,607.84.

The Withdrawal Process and Taxation

To initiate the withdrawal, contact your 401(k) plan administrator. They will guide you through their procedures for requesting a distribution, which may involve completing a form or making a request through an online portal.

Money withdrawn as an RMD is taxed as ordinary income. This means it will be added to your other income for the year, such as Social Security or pension payments, and taxed at your applicable federal and state rates. Your plan administrator will send you IRS Form 1099-R, which reports the distribution and any taxes withheld, and you will use this form to report the income on your tax return.

When you request your RMD, you will need to consider tax withholding. A 10% federal withholding may apply, though you can often elect not to have taxes withheld, or you can request that a higher percentage be withheld to cover your potential tax liability. A key difference between 401(k)s and IRAs is that Qualified Charitable Distributions (QCDs), which allow direct tax-free transfers to a charity, cannot be made from a 401(k) to satisfy an RMD.

Penalties for Missed Withdrawals

Failing to take your full RMD by the deadline can result in a penalty. The IRS imposes an excise tax on the amount that should have been withdrawn but was not. The SECURE 2.0 Act reduced this penalty to 25% of the shortfall.

This penalty can be reduced to 10% if you correct the mistake in a timely manner. This means withdrawing the shortfall amount and filing a corrected tax return within a two-year correction window. The penalty is calculated on the difference between the amount you were required to withdraw and the amount you actually took.

The penalty may be waived if you can show the IRS the failure was due to a reasonable error and that you are taking steps to fix it. To request a waiver, file IRS Form 5329 and attach a letter explaining the reason for the shortfall. The first step is to withdraw the missed RMD amount as soon as you realize the error.

Managing RMDs with Multiple Retirement Plans

Managing RMDs can be complex if you have multiple retirement accounts. The rules for 401(k) plans are distinct from those for Individual Retirement Arrangements (IRAs), and understanding the difference is necessary for compliance.

For 401(k)s, the rules operate on a per-plan basis. If you have more than one 401(k) account, you must calculate the RMD for each plan separately. You must then withdraw that calculated amount from each specific plan and cannot take the total from just one.

This contrasts with the rules for IRAs. While you must calculate the RMD for each of your traditional IRAs separately, you are permitted to aggregate the total RMD amount. You can then withdraw that combined total from a single IRA or any combination of your IRAs. This flexibility can simplify the withdrawal process.

Given the per-plan rule for 401(k)s, a common strategy is to consolidate retirement assets before RMDs begin. Rolling over funds from old 401(k) plans into a single traditional IRA can streamline the annual RMD process. This allows you to take advantage of the more flexible IRA aggregation rule.