Get Your Free 401(k) RMD Information Guide

What Are Required Minimum Distributions and Why They Matter

A Required Minimum Distribution (RMD) is the minimum amount of money you must withdraw from certain retirement accounts each year once you reach a specific age. The IRS requires these withdrawals because these accounts received tax benefits when you contributed to them. By requiring withdrawals, the government collects taxes on the money you've saved.

Get Your Free Laundry Service Information Guide →

For most people, RMDs begin at age 73 as of 2023 (this age was increased from 72 due to the SECURE 2.0 Act). However, if you were already taking RMDs before the law changed, your age requirement stays the same. The amount you must withdraw depends on your account balance and your life expectancy according to IRS tables.

RMDs apply to several types of retirement accounts, including traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and most other employer-sponsored plans. However, Roth IRAs are different—they don't require withdrawals during the account owner's lifetime. This is one reason many people find Roth accounts valuable.

Understanding RMDs is important because failing to take them comes with serious penalties. If you don't withdraw the required amount, you face a tax penalty of 25% on the amount you should have withdrawn (this penalty was also updated by SECURE 2.0 Act). For example, if your RMD is $5,000 and you don't withdraw it, you could owe a $1,250 penalty, on top of income taxes on that $5,000.

Practical Takeaway: Learning about RMD rules before you're required to take them gives you time to plan ahead. Knowing when your RMD starts and how much you'll need to withdraw helps you prepare financially and avoid penalties.

How RMD Amounts Are Calculated

The IRS uses a straightforward formula to calculate your RMD each year. You take the account balance as of December 31 of the previous year and divide it by a life expectancy factor from IRS tables. The IRS publishes three different tables depending on your situation: the Uniform Lifetime Table (used by most people), the Spousal Table (if your spouse is more than 10 years younger and is your sole beneficiary), and the Single Life Expectancy Table (used by beneficiaries after the account owner dies).

Get Your Free Android Phone Troubleshooting Guide →

Let's walk through a real example. Suppose you turn 73 in 2024 and have a traditional IRA with a balance of $200,000 on December 31, 2023. Using the Uniform Lifetime Table, the life expectancy factor for age 73 is 26.5. You divide $200,000 by 26.5, which equals approximately $7,547. This is your RMD for 2024.

The calculation changes each year because your account balance will be different and your life expectancy factor decreases. In the next year, if your account grows to $215,000 and you're now 74, the life expectancy factor is 25.5. You'd divide $215,000 by 25.5, giving you an RMD of approximately $8,431.

If you have multiple retirement accounts of the same type, you can add up all the RMDs and withdraw the total from one account or spread it across several. However, you must calculate each account separately first. For example, if you have two traditional IRAs, you add their RMDs together but can withdraw from just one IRA. This flexibility doesn't apply to 401(k)s and other employer plans—you must calculate and take RMDs separately from each one.

Practical Takeaway: Understanding the calculation helps you predict your RMD and plan your withdrawals. Many financial institutions send RMD calculations with statements, but knowing how it works lets you verify the numbers.

Different Account Types and Their RMD Rules

Not all retirement accounts follow identical RMD rules, so it's important to know what accounts you own. A traditional IRA and a 401(k) have different withdrawal requirements even though both are retirement savings accounts.

Free Guide to Understanding Custody Case Preparation →

Traditional IRAs must begin RMDs at age 73 (for those who weren't already taking RMDs). The calculation is based on your IRA balance as of December 31 of the prior year. If you have multiple traditional IRAs, you add all their balances together to calculate one combined RMD, but you can withdraw that total from any one IRA or spread it among them.

Employer-sponsored plans like 401(k)s and 403(b)s also require RMDs starting at age 73. However, there's an exception called the "still-working exception." If you're still employed and don't own 5% or more of the company, you can delay RMDs from that employer's plan until you actually retire. This doesn't apply to IRAs—once you hit 73, IRAs require withdrawals whether you're working or not.

SEP IRAs and SIMPLE IRAs follow traditional IRA rules for RMDs. Both require withdrawals at age 73 using the same Uniform Lifetime Table. SIMPLE IRA accounts are designed for small business owners and their employees, but they're treated like traditional IRAs for RMD purposes.

Roth IRAs are special—they have no RMD requirement during the account owner's lifetime. This is a major advantage for people who don't need the money and want to leave a larger inheritance. However, beneficiaries who inherit a Roth IRA do have RMD requirements (though the rules changed significantly under SECURE Act).

Practical Takeaway: Make a list of all retirement accounts you own and their types. This helps you understand which RMD rules apply to each account and whether any special exceptions might benefit you.

Key Changes from the SECURE Act and SECURE 2.0 Act

Recent laws have made significant changes to RMD rules. Understanding these updates is important because they affect when RMDs start and how much you must withdraw.

Learn About Checking Your Screen Resolution →

The SECURE Act, passed in 2019, changed RMD rules for beneficiaries. Before this law, if someone inherited a retirement account, they could stretch withdrawals over their own lifetime, keeping taxes lower. The SECURE Act eliminated this for most beneficiaries. Now, most non-spouse beneficiaries must withdraw all inherited retirement account funds within 10 years of the account owner's death.

The SECURE 2.0 Act, passed in late 2022, raised the RMD starting age from 72 to 73. This means if you reach age 72 after December 31, 2022, your first RMD is due when you turn 73, not 72. However, if you were already taking RMDs at age 72, the change doesn't affect you. The age will increase to 74 for people born in 1960 or later, in 2033, and to 75 for people born in 1970 or later, in 2043.

SECURE 2.0 also increased the penalty for missing an RMD. The penalty dropped from 25% to 10% if you correct the mistake within two years. But if you don't correct it, the penalty remains at 25%. This is still a significant penalty, so understanding RMD deadlines matters.

Additionally, SECURE 2.0 expanded opportunities for penalty-free withdrawals in certain situations, like financial hardship. Some people may be able to withdraw from their retirement accounts in emergencies without the usual 10% early withdrawal penalty that applies before age 59½.

Practical Takeaway: If you haven't looked at your RMD rules recently, these changes might affect you. Reviewing current law helps you understand whether your RMD age or amount has shifted.

Common Mistakes and How to Avoid Them

Many people make preventable mistakes with RMDs. Learning about these errors now can help you stay on track and avoid costly penalties.

Your Free Guide to Cleaning Lodge Cast Iron →

One common mistake is forgetting to take the RMD by the deadline. Your RMD must be withdrawn by December 31 of each year (with one exception: your very first RMD can be taken by April 1 of the