Learn How to Calculate Required Minimum Distributions

Understanding Required Minimum Distributions and Why They Matter

A Required Minimum Distribution, commonly called an RMD, is the minimum amount of money that account owners must withdraw each year from certain retirement accounts. The Internal Revenue Service (IRS) established these rules to ensure that people don't keep retirement savings in tax-advantaged accounts indefinitely without paying taxes on the money.

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RMDs apply to most tax-deferred retirement accounts, including traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer-sponsored plans like 401(k)s and 403(b)s. These rules do not typically apply to Roth IRAs during the account owner's lifetime, though they may apply to beneficiaries after the original owner passes away. Understanding whether your accounts are subject to RMDs is the first step in calculating what you owe.

The purpose of RMDs is straightforward: the government wants to collect taxes on retirement savings that have received favorable tax treatment throughout your working years. When you contribute to a traditional IRA or 401(k), that contribution often reduces your taxable income in the year you make it. The earnings in the account grow tax-free. RMDs ensure that eventually, you will withdraw and pay taxes on this money.

RMDs typically begin after you reach age 73, based on rules that took effect in 2023. This age was previously 72, but the SECURE 2.0 Act raised it. If you were already taking distributions before the rule change, you continue under the previous age requirement. The exact year your RMDs begin depends on when you turned 70½, if applicable under older rules, or your current age if newer rules apply to you.

Many people view RMDs as an inconvenience or additional burden during retirement. However, the distribution amounts are calculated to spread withdrawals over your life expectancy, which means the amounts are often manageable. In some cases, the required amount may be less than what you would withdraw anyway for living expenses. Understanding this requirement prevents penalties, confusion, and unnecessary taxes.

Practical Takeaway: RMDs are mandatory withdrawals from retirement accounts that begin at a specific age and must continue annually. Knowing whether your accounts fall under these rules and when your distributions must start prevents missed deadlines and penalties.

The Age When Required Minimum Distributions Begin

The starting age for RMDs changed recently under the SECURE 2.0 Act, which Congress passed in December 2022. For individuals who turned 73 in 2023 or will turn 73 in 2024 and beyond, RMDs must begin by April 1 of the year following the year they turn 73. This represents a change from the previous rule, which set the age at 72. However, if you were already taking RMDs before this change, you continue under the old rules and do not restart the process.

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The first RMD deadline is unique. You have until April 1 of the year after you reach the starting age to take your first distribution. This deadline is called the "required beginning date." For example, if you turn 73 in 2024, your required beginning date is April 1, 2025. After that first distribution, all subsequent RMDs must be taken by December 31 each year.

Many financial professionals recommend taking your first RMD before April 1 rather than waiting until that deadline. Here's why: if you wait until April 1 of the following year, you will have two RMDs to take in that same calendar year—one for the previous year and one for the current year. Taking both distributions in one year can push your income into a higher tax bracket and potentially increase your tax liability for that year. Taking the first distribution in the same year you reach the starting age spreads the distributions across two calendar years and often results in lower overall taxes.

Your age is determined as of December 31 of the year in question. So if you turn 73 on December 31, 2024, you are considered 73 for the entire year 2024, and your required beginning date is April 1, 2025. This rule applies even if your birthday is on January 1—you would use your age on December 31 of the previous year.

The starting age rules can become more complex if you are still working and participating in a 401(k) plan. Under the "still-working exception," you may be able to delay your RMDs from your current employer's plan until you actually retire, even if you have reached the required age. However, this exception does not apply to IRAs or to plans from previous employers. Understanding which accounts are covered by this exception prevents unnecessary early withdrawals.

Practical Takeaway: Most people must begin taking RMDs by April 1 of the year after they turn 73. Taking the first distribution in the same calendar year you reach 73, rather than waiting until the following April, can reduce your tax burden by spreading distributions across two tax years.

Calculating Your Required Minimum Distribution Amount

The formula for calculating RMDs is straightforward but requires two pieces of information: your account balance and a life expectancy factor provided by the IRS. The basic formula is: Account Balance (as of December 31 of the prior year) divided by the Life Expectancy Factor equals your RMD for the year.

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The IRS publishes life expectancy factors in tables. The most commonly used table is the Uniform Lifetime Table, which applies to most account owners. This table assumes a life expectancy based on your age and is designed so that your account will be roughly depleted by the time you pass away, assuming average life expectancy. The factors decrease each year as you age because your remaining life expectancy decreases.

Here's a practical example: Suppose you are 75 years old and your traditional IRA balance was $200,000 on December 31 of the prior year. According to the Uniform Lifetime Table, the life expectancy factor for age 75 is 24.6. Your RMD is calculated as $200,000 divided by 24.6, which equals $8,130.08. You must withdraw at least this amount during the current year.

The account balance used in this calculation is the fair market value on December 31 of the prior year. If you have multiple IRAs, you add up all the balances from all your traditional IRAs and calculate one combined RMD. However, you can withdraw this total amount from any single IRA or split it among multiple IRAs as you choose. This flexibility allows you to take the distribution from the account with the most accessible funds.

For 401(k)s and other employer plans, the rules are slightly different. If you have multiple employer plans, you generally must calculate and take an RMD from each plan separately. You cannot combine them. However, if you have rolled over a 401(k) into an IRA, that IRA amount can be combined with other IRAs for RMD calculation purposes.

Some situations require using a different life expectancy table. If you are significantly younger than your spouse and name your spouse as your sole beneficiary, you may use the Joint and Last Survivor Table, which generally produces lower RMD amounts. If your only beneficiary is your spouse and you are more than 10 years younger, your financial institution should help you use the correct table. If you are unsure which table applies to your situation, contact your financial institution or consult a tax professional.

Practical Takeaway: Calculate your RMD by dividing your prior year's account balance by the IRS life expectancy factor for your age. Most people use the Uniform Lifetime Table. For multiple IRAs, combine all balances and calculate one RMD, though you can take the withdrawal from any combination of accounts.

How to Handle Multiple Retirement Accounts

Many people accumulate multiple retirement accounts over their working years through different jobs, rollovers, or savings strategies. Understanding how RMD rules apply when you have several accounts is essential for calculating your total obligation correctly and taking distributions efficiently.

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For traditional IRAs, SEP IRAs, and SIMPLE IRAs, the rules allow you to treat multiple accounts as one for RMD calculation purposes. You add up the December 31 balances from all your traditional IRAs, then calculate one RMD based on the combined total. This is called aggregating accounts. Once you have calculated the total RMD you owe, you can take the money from any single account or split it among multiple accounts however you