What Happens If You Take More Than Your RMD?

A Required Minimum Distribution (RMD) is the amount the Internal Revenue Service (IRS) mandates you withdraw annually from most retirement accounts once you reach age 73. While failing to take your full RMD results in a tax penalty, no such penalty exists for taking a withdrawal that is larger than your required amount. However, these excess withdrawals have direct tax and financial planning consequences that require careful consideration.

Tax Consequences of Excess Withdrawals

The most immediate consequence of taking more than your RMD is the resulting tax liability. For pre-tax retirement accounts like traditional IRAs, 401(k)s, and 403(b)s, every dollar you withdraw is treated as ordinary income for the year. The total withdrawal amount is added to your other income sources, such as pensions or Social Security, to determine your total taxable income.

This increase in taxable income can push you into a higher marginal tax bracket, meaning a larger percentage of your income is paid in taxes. For instance, if a $20,000 excess withdrawal moves you from the 12% to the 22% federal income tax bracket, that additional income will be taxed at the higher rate. This can also trigger higher state income taxes.

Plan administrators are often required to withhold a certain percentage for taxes on distributions. The portion of a distribution exceeding the RMD may be subject to a mandatory 20% federal tax withholding if it’s an eligible rollover distribution paid to you. This withholding is sent directly to the IRS and is credited toward your final tax bill, but it reduces the cash you receive from the withdrawal.

Effect on Future RMD Calculations

Taking a larger distribution from your retirement account impacts future RMDs. The calculation uses your account’s fair market value on December 31 of the previous year divided by an IRS life expectancy factor. A larger withdrawal leads to a smaller year-end account balance.

For example, if you withdraw $50,000 from a $500,000 account instead of the $20,000 RMD, the lower year-end balance will result in smaller RMDs in all subsequent years. This lower balance becomes the starting point for the next year’s RMD calculation.

This reduction is a mechanical outcome of the withdrawal, not a credit for taking more than required. You cannot apply an excess withdrawal from one year to satisfy the RMD for a future year. Each year’s RMD must be calculated independently.

Returning an Unwanted Withdrawal

If you take an excess withdrawal and later decide it was a mistake, you may have an option to reverse the transaction using the 60-day rollover rule. This IRS provision allows you to redeposit the withdrawn funds into an eligible retirement account within 60 days of receiving them, avoiding the tax consequences. The 60-day clock is strict and begins the day you receive the funds.

The RMD portion of any withdrawal is never eligible for a rollover. If you attempt to roll over your RMD, it will be treated as an excess contribution to the new account, which can trigger a 6% penalty tax for each year it remains.

This 60-day rollover option is limited to one per individual in any 12-month period. Missing the 60-day deadline makes the withdrawal permanent for tax purposes, and the entire amount becomes part of your taxable income for that year.