Your Free Guide to Understanding Required Minimum Distributions

What Are Required Minimum Distributions and Why They Matter

A Required Minimum Distribution, or RMD, is the smallest amount of money you must withdraw from certain retirement accounts each year once you reach a specific age. The IRS created this rule to ensure that people eventually take money out of tax-advantaged retirement accounts rather than letting the money sit untouched indefinitely. Understanding RMDs is important because failing to withdraw the required amount can result in a significant penalty — currently 25% of the amount you should have withdrawn but didn't, reduced to 10% if you correct the mistake within two years.

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The RMD rules apply to most traditional retirement accounts, including traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored plans like 401(k)s and 403(b)s. Roth IRAs have different rules and generally don't require distributions during the account owner's lifetime. The purpose behind RMDs is straightforward: retirement accounts receive tax breaks when you contribute to them, so the government wants to collect taxes on this money eventually rather than allowing indefinite tax deferral.

RMDs became especially important after the SECURE Act was signed into law in December 2019, which changed several RMD rules. For people born in 1949 or later, the age at which RMDs begin changed from 70½ to 72, effective January 1, 2023. For people who turn 73 in 2023 or later, the age increases to 73. These changes mean that millions of Americans now have a few extra years before they must start taking distributions.

The calculation of your RMD involves dividing the balance of your retirement account as of December 31 of the prior year by a life expectancy factor published by the IRS. This factor is based on mortality tables and assumes a certain life span for your age group. A 72-year-old, for example, uses a different life expectancy factor than an 82-year-old, resulting in a smaller distribution percentage for the younger person. Understanding this basic calculation helps explain why your RMD amount changes each year as you age.

Practical Takeaway: Mark the calendar for the year you turn 72 (or 73 if applicable based on your birth year). This is when you'll need to start taking RMDs unless you're still working and your employer offers an exception. Begin learning about RMD rules three to six months before this date so you have time to plan and communicate with your account custodian.

Key Dates and Age Thresholds You Should Know

The age at which you must begin taking RMDs is the most important date to track. For people born before July 1, 1949, the RMD age remains 70½. However, for those born on or after July 1, 1949, the required beginning age is 72. If you were born in 1951 or later and haven't reached age 73 yet, your RMD age is 73. These distinctions matter because taking your first RMD late triggers penalties, while taking it early is unnecessary and can affect your tax situation.

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Your first RMD must be taken by April 1 of the year following the year you reach your RMD age. For example, if you turned 72 in 2023, your first RMD deadline is April 1, 2024. After that initial distribution, you must take your RMD by December 31 of each subsequent year. This April 1 deadline for the first RMD is important because it's the only RMD that can be delayed beyond the calendar year in which you turn the required age. All future distributions must occur by December 31.

Some people have multiple retirement accounts, and each account generally requires its own RMD calculation. However, a special rule allows you to combine RMDs from multiple traditional IRAs and take a single distribution from one account instead of taking distributions from each account separately. This is called "aggregating" your IRAs. The same rule does not apply to employer-sponsored plans like 401(k)s, though, so if you have a 401(k) and an IRA, you must calculate and take separate distributions from each.

There's also an important date to be aware of if you're still working: the "Still Working Exception" allows you to delay RMDs from a current employer's 401(k) or 403(b) plan if you're still employed by that company and don't own more than 5% of the business. This exception does not apply to IRAs, SEP IRAs, or SIMPLE IRAs. If you leave your job before your RMD age, this exception no longer applies to that employer's plan.

Practical Takeaway: Write down your specific RMD age based on your birth date and circle April 1 of the year after you turn that age on a calendar. If you have multiple retirement accounts, create a list of each account type and number so you can calculate RMDs for each one. Contact each account custodian (your bank, brokerage firm, or plan administrator) at least 60 days before your April 1 deadline to confirm whether they'll calculate and distribute your RMD automatically or whether you need to request it.

How Your RMD Amount Is Calculated

Calculating your RMD involves a simple two-step process that you can understand without being a mathematician. First, you determine your account's "applicable distribution period" by looking up your age on an IRS life expectancy table. For someone who is 72 years old in 2024, the distribution period is 27.4. For someone who is 82, it's 17.2. These numbers reflect how long, on average, the IRS assumes you'll live. Second, you divide your account balance as of December 31 of the prior year by this distribution period number. That's your RMD for the year.

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Here's a concrete example: suppose you have a traditional IRA with a balance of $500,000 on December 31, 2023. You turn 72 in 2024. According to the IRS Uniform Lifetime Table, the distribution period for age 72 is 27.4. You divide $500,000 by 27.4, which equals $18,248.18. This is your RMD for 2024. You must withdraw this amount by December 31, 2024 (or April 1, 2025 if it's your first RMD). The following year, you'd recalculate using your December 31, 2024 balance and your age 73 distribution period of 26.5.

The IRS publishes three different life expectancy tables: the Uniform Lifetime Table (used by most people), the Joint and Last Survivor Table (used when your spouse is your sole designated beneficiary and is more than 10 years younger), and the Single Life Expectancy Table (used by beneficiaries inheriting retirement accounts). Most retirees use the Uniform Lifetime Table. The IRS updates these tables periodically, and the most recent significant changes took effect in 2022. Your account custodian typically provides these tables to you or you can find them on the IRS website.

If you have multiple accounts of the same type, you can aggregate them. For example, if you own three traditional IRAs with balances of $200,000, $150,000, and $100,000, your total balance is $450,000. You calculate one RMD based on the combined balance, then withdraw that total amount from whichever account or accounts you choose. However, you must calculate separate RMDs for employer-sponsored plans like 401(k)s and must take the required distribution from each plan separately.

The account balance date used for calculating RMDs is always December 31 of the preceding year, not the current year. This means that if your account performs poorly during the year, you still must take a distribution based on the prior year's higher balance. Conversely, if markets rise significantly after your RMD, your remaining balance grows tax-free within the account (though the distributed amount is subject to income tax).

Practical Takeaway: Request a statement from each retirement account custodian showing the December 31 balance from the prior year. Ask your custodian if they can calculate your RMD for you — most will do this at no charge. If you prefer to calculate it yourself, write down your account balance and look up your age on the IRS Uniform Lifetime Table (available on IRS.gov).