Required minimum distributions set a floor for retirement withdrawals
An RMD is the minimum annual withdrawal required from many retirement accounts, with rules on timing, taxes and penalties.
By Maya Okafor · Markets Writer
· 5 min read
The IRS defines a required minimum distribution, or RMD, as the minimum amount a person generally must withdraw each year from certain retirement accounts. For investors with a traditional IRA or many workplace plans, the rule means retirement funds cannot stay in the account indefinitely once RMD rules apply.
The general starting age is 73. An RMD is a floor, not a limit, so an account owner can take more than the required amount. Withdrawals generally count as taxable income, except for amounts already taxed, called basis, or amounts eligible for tax-free treatment.
Which accounts have RMDs?
RMD rules apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, 457(b)s, profit-sharing plans and other defined-contribution workplace plans.
Roth accounts are treated differently. The original owner does not have to take lifetime RMDs from a Roth IRA or a designated Roth account in a 401(k) or 403(b). Beneficiaries who inherit Roth accounts are subject to distribution rules.
When do RMDs start?
For a traditional, SEP or SIMPLE IRA, the first RMD is generally for the year the owner reaches age 73. It may be taken as late as April 1 of the following year. After that, the deadline is December 31 each year.
Waiting until April 1 for the first RMD generally puts two RMDs in the same calendar year: the delayed first withdrawal and the following year's RMD, due by December 31. Both distributions may be included in income during that year.
A current workplace plan can work differently. A participant may generally delay RMDs from that plan until retirement if the plan allows it. That exception does not apply to a person who owns 5% of the sponsoring business, and a plan's terms can require distributions while an employee is still working. It also does not postpone RMDs from traditional, SEP or SIMPLE IRAs.
How the annual amount is calculated
The basic IRS calculation uses two inputs: the account's balance on December 31 of the preceding year and a distribution period, also called a life-expectancy factor, from an IRS table. Divide the balance by the applicable factor:
RMD = prior December 31 account balance ÷ IRS distribution period
Most owners use the Uniform Lifetime Table. A different table applies when the account owner's sole beneficiary is a spouse who is at least 10 years younger. The IRS worksheets and tables can help identify the applicable calculation.
Illustrative calculation
Assume a traditional IRA had a balance of $100,000 on the prior December 31, and the applicable age-73 distribution period is 26.5.
$100,000 ÷ 26.5 = $3,773.58
In this example, $3,773.58 is the minimum distribution for that year. The amount can change with the next year's December 31 balance and the next applicable distribution period.
A quick RMD decision path
- Identify the account. Traditional and many tax-deferred workplace accounts are generally covered. Roth IRAs and designated Roth workplace accounts are not subject to lifetime RMDs for the original owner.
- Check the age rule. Under the general rule described here, RMDs begin at age 73.
- Separate IRA rules from current-workplace-plan rules. Still working may permit a delay for the current employer's plan if the plan permits and the participant is not a 5% owner. It does not delay an IRA RMD.
- Use the prior year-end balance and the correct IRS factor. A sole spouse beneficiary who is at least 10 years younger requires a different life-expectancy table.
- Track the deadline. The first withdrawal may be delayed to April 1 of the following year; later annual withdrawals are generally due December 31.
What happens if an RMD is missed?
Taking too little, or taking nothing, can produce an excise tax of 25% of the amount that should have been distributed. The rate can be reduced to 10% if the shortfall is withdrawn within two years. The account owner is responsible for taking the correct amount on time.
Inherited accounts need separate attention. For many IRA owners and defined-contribution plan participants who died after 2019, the full account balance generally must be distributed within 10 years. Exceptions include a surviving spouse, a child who has not reached the age of majority, a disabled or chronically ill person, and someone not more than 10 years younger than the deceased owner. The applicable rules depend on the beneficiary and the account's facts.
For a straightforward traditional IRA or 401(k), the IRS worksheets and the SEC's RMD calculator can help check the arithmetic. Inherited accounts, a sole spouse beneficiary who is at least 10 years younger, and workplace-plan provisions may require account-specific review.
Frequently asked questions
When is my first required minimum distribution due?
For an IRA, including a SEP or SIMPLE IRA, the first RMD is generally due by April 1 of the year after the calendar year in which you reach age 73. If you use that delay, the next year's RMD is still generally due by December 31 of the same year.
How is a required minimum distribution calculated?
The general calculation divides the retirement account's December 31 balance from the prior year by the applicable IRS distribution period or life-expectancy factor. Most owners use the Uniform Lifetime Table, but owners whose sole beneficiary is a spouse at least 10 years younger use a different table.
Do Roth IRAs and Roth 401(k) accounts have required minimum distributions?
Roth IRAs and designated Roth accounts in workplace plans do not require RMDs while the original owner is alive. Beneficiaries of those accounts are subject to distribution rules.
Can I delay RMDs if I am still working?
A current workplace plan may allow a participant to delay its RMD until retirement, but this does not apply to a 5% owner of the business sponsoring the plan. Traditional, SEP and SIMPLE IRAs generally remain subject to the age-based RMD rule even if the owner is working.
Sources
- Retirement topics - Required minimum distributions (RMDs) - IRS — www.irs.gov
- Retirement plan and IRA required minimum distributions FAQs - IRS — www.irs.gov
- How do I calculate my required minimum distribution? — www.fidelity.com
- Required Minimum Distribution Calculator - Investor.gov — www.investor.gov
