Calculating Your Required Minimum Distribution (RMD)

Quick answer

• RMDs are mandatory withdrawals from certain retirement accounts after you reach a specific age.
• The amount is calculated using your account balance and a life expectancy factor from IRS tables.
• You must take your RMD by December 31st each year.
• Failure to take an RMD can result in a significant penalty.
• Consult IRS Publication 590-B for detailed information and worksheets.
• Consider using retirement account calculators or consulting a financial advisor for assistance.

Who this is for

• Individuals who have reached the age at which RMDs are required (currently 73 for most people).
• Holders of traditional IRAs, SEP IRAs, SIMPLE IRAs, and 401(k)s, 403(b)s, and other employer-sponsored retirement plans.
• Those who want to understand the mechanics of calculating their RMD to ensure compliance and plan their finances.

What to check first (before you act)

Your RMD Age

Your RMD obligation begins in the year you turn age 73. This age may change due to legislative updates, so always verify the current requirement with the IRS. If you turn 73 in the current year, your first RMD must be taken by April 1st of the following year. Subsequent RMDs are due by December 31st of each year.

Retirement Account Types

Not all retirement accounts are subject to RMDs. Generally, traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer-sponsored plans like 401(k)s, 403(b)s, and profit-sharing plans require RMDs. Roth IRAs do not have RMDs for the original owner. However, beneficiaries of Roth IRAs may have RMD obligations.

Account Balance

The value of your retirement account(s) as of December 31st of the preceding year is a crucial component of your RMD calculation. This balance is used as the numerator in the RMD formula. Ensure you have accurate year-end statements for all relevant accounts.

Applicable IRS Life Expectancy Tables

The IRS provides specific life expectancy tables (Uniform Lifetime Table, Joint Life and Last Survivor Expectancy Table, and Single Life Expectancy Table) used to determine the distribution period. The Uniform Lifetime Table is the most commonly used for IRA owners. The Joint Life and Last Survivor Expectancy Table is used when your sole beneficiary is your spouse, who is more than 10 years younger than you.

Step-by-step (how to calculate your RMD)

1. Determine Your RMD Age and Year:

• What to do: Identify the year you will reach the age at which RMDs are mandated. For most individuals, this is age 73.
• What “good” looks like: You know the specific age when your RMD obligation begins and the calendar year it applies to.
• Common mistake: Miscalculating your age or the year your RMD obligation starts, leading to missed deadlines or incorrect calculations.
• How to avoid: Double-check your birthdate and the current IRS regulations regarding RMD ages.

2. Identify Your Applicable Retirement Accounts:

• What to do: List all retirement accounts that are subject to RMD rules (e.g., traditional IRAs, 401(k)s).
• What “good” looks like: A clear inventory of all RMD-eligible accounts.
• Common mistake: Forgetting about an older IRA or a forgotten employer plan.
• How to avoid: Review all your retirement savings statements and consult old paperwork.

3. Obtain Your December 31st Year-End Account Balances:

• What to do: For each RMD-eligible account, find the exact balance as of December 31st of the previous year.
• What “good” looks like: You have precise year-end balance figures for all relevant accounts.
• Common mistake: Using an interim balance or an estimate instead of the official year-end statement.
• How to avoid: Always use the official statements provided by your financial institution.

4. Select the Correct IRS Life Expectancy Table:

• What to do: Determine which IRS table applies to your situation. The Uniform Lifetime Table is standard for most individuals. If your sole beneficiary is a spouse more than 10 years younger, use the Joint Life and Last Survivor Expectancy Table.
• What “good” looks like: You have identified the correct table based on your circumstances and beneficiary status.
• Common mistake: Using the wrong table, which can lead to an incorrect distribution period.
• How to avoid: Carefully read the IRS guidelines in Publication 590-B for table selection criteria.

5. Find Your Life Expectancy Factor:

• What to do: Locate your age for the current RMD year in the chosen IRS table and find the corresponding “Distribution Period” or “Life Expectancy Factor.”
• What “good” looks like: You have identified the correct numerical factor from the table.
• Common mistake: Picking the wrong age or reading the table incorrectly.
• How to avoid: Ensure you are looking up the factor for your age during the year you are taking the RMD.

6. Calculate Your RMD for Each Account:

• What to do: For each account, divide the December 31st year-end balance by your life expectancy factor.
• What “good” looks like: You have a calculated RMD amount for each eligible account.
• Common mistake: Forgetting to divide by the factor, or using the wrong factor.
• How to avoid: Follow the formula: RMD = (Prior Year-End Account Balance) / (Life Expectancy Factor).

7. Sum RMDs for Multiple Accounts (if applicable):

• What to do: If you have multiple traditional IRAs, you can calculate the RMD for each and then withdraw the total from any one or combination of them. For employer plans (like 401(k)s), you must take the RMD from each plan separately.
• What “good” looks like: You know the total RMD amount required from all your accounts, or the individual amounts from each employer plan.
• Common mistake: Incorrectly combining or separating RMDs from different types of accounts.
• How to avoid: Understand that traditional IRAs offer flexibility in withdrawal source, while employer plans require separate distributions.

8. Take the Distribution:

• What to do: Initiate the withdrawal from your chosen account(s). This can be done as a direct rollover to another RMD-eligible account, or as a cash distribution.
• What “good” looks like: You have received the RMD amount by the deadline.
• Common mistake: Delaying the withdrawal until the last minute, risking missed deadlines or errors.
• How to avoid: Plan your withdrawal well in advance of the December 31st deadline.

9. Report on Your Tax Return:

• What to do: Report the RMD as taxable income on your federal and any applicable state tax returns for the year the distribution was taken.
• What “good” looks like: Your RMD is accurately reported on your tax return.
• Common mistake: Not reporting the RMD income, leading to underpayment of taxes and potential penalties.
• How to avoid: Keep records of your RMD withdrawals and consult your tax preparer.

Common mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
Missing the RMD deadline	A significant penalty (currently 25% of the RMD amount not taken).	Take the RMD as soon as possible. You may be able to request a penalty waiver from the IRS if you can prove reasonable cause for the delay.
Using the wrong account balance	An incorrect RMD amount, leading to under- or over-withdrawal.	Always use the December 31st year-end balance from your official account statement.
Using the wrong life expectancy table	An incorrect distribution period and therefore an incorrect RMD amount.	Carefully review IRS Publication 590-B to determine the correct table based on your age and beneficiary situation.
Miscalculating your age for the table	Using an incorrect life expectancy factor.	Ensure you are using your age <em>during</em> the year the RMD is being taken, not your age at the end of the year.
Taking RMDs from the wrong account type	Incorrectly calculating the total RMD or taking from non-qualifying accounts.	Understand that RMDs from traditional IRAs can be aggregated and taken from any IRA, but RMDs from employer plans must be taken from each plan individually.
Not reporting RMD income on taxes	Underpayment of taxes, potential interest, and penalties.	Accurately report all RMD distributions as taxable income on your annual tax return.
Assuming Roth IRAs require RMDs for the owner	Unnecessary anxiety or incorrect planning.	Roth IRAs do not have RMDs for the original owner. Only beneficiaries of Roth IRAs typically have RMD obligations.
Not accounting for multiple accounts	Underestimating the total RMD required.	Systematically list all RMD-eligible accounts and calculate the RMD for each before summing them up, or taking them individually from employer plans.
Withdrawing too much	Unnecessary tax liability and depletion of retirement savings.	Calculate the RMD precisely. If you withdraw more than required, the excess is not an RMD and will be taxed as ordinary income. You can’t “put it back” to reduce the RMD for the current year.
Not understanding how inherited IRAs work	Incorrect RMD calculations and potential penalties.	Inherited IRAs have specific RMD rules based on the beneficiary’s relationship to the deceased and the year of death. Consult IRS Publication 590-B or a professional.

Decision rules (simple if/then)

• If you have a traditional IRA, then you must take an RMD because it’s a pre-tax retirement account.
• If you are under age 73, then you do not need to take an RMD (unless you inherited an IRA from someone who was required to take one).
• If your sole beneficiary is your spouse and they are more than 10 years younger than you, then you may use the Joint Life and Last Survivor Expectancy Table to potentially lower your RMD because it provides a longer distribution period.
• If you have multiple traditional IRAs, then you can calculate the RMD for each and withdraw the total from any one or combination of them because the IRS allows for aggregation of IRA RMDs.
• If you have a 401(k) and are no longer employed by the company sponsoring it, then you must take an RMD from that 401(k) because the RMD requirement is not deferred for former employees.
• If you fail to take your RMD by December 31st, then you will likely face a penalty of 25% of the amount you should have withdrawn because the IRS mandates timely distributions.
• If you have a Roth IRA, then you do not need to take an RMD for yourself as the original owner because Roth IRAs are funded with after-tax dollars and are exempt from RMD rules during your lifetime.
• If your RMD calculation results in a very small amount, then you still must take it because even a minimal distribution is subject to the RMD rules.
• If you are calculating your RMD for the first time, then it is wise to consult IRS Publication 590-B for detailed instructions and worksheets because it is the authoritative source for RMD rules.
• If you are unsure about any aspect of your RMD calculation or tax implications, then you should consult a qualified financial advisor or tax professional because personalized advice is crucial for complex financial matters.
• If you inherited an IRA, then your RMD calculation will be different and depends on the deceased owner’s age and your status as a beneficiary because inherited IRAs have unique distribution rules.

FAQ

What is a Required Minimum Distribution (RMD)?

An RMD is the minimum amount of money that you must withdraw annually from certain retirement accounts once you reach a specific age. These withdrawals are generally taxable as ordinary income.

When do I have to start taking RMDs?

For most individuals, the RMD age is currently 73. Your first RMD must be taken by April 1st of the year following the year you turn 73, and subsequent RMDs are due by December 31st each year.

Which retirement accounts require RMDs?

Generally, traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, profit-sharing plans, and other employer-sponsored retirement plans require RMDs. Roth IRAs do not have RMDs for the original owner.

How is the RMD amount calculated?

The RMD is calculated by dividing the prior year-end account balance by a life expectancy factor provided by the IRS in specific tables (like the Uniform Lifetime Table).

What if I have multiple traditional IRAs?

If you have more than one traditional IRA, you can calculate the RMD for each and then withdraw the total amount from any one or a combination of your IRAs.

What happens if I don’t take my RMD?

Failure to take your RMD by the deadline can result in a penalty equal to 25% of the amount that should have been withdrawn. This penalty may be reduced to 10% if you take the distribution promptly and request a waiver.

Can I take my RMD as a direct rollover?

Yes, you can roll over an RMD directly to another eligible retirement account, such as another traditional IRA, provided it’s done within 60 days of the distribution and meets specific rollover rules. However, the distribution must still be taken and will be taxable income.

Do beneficiaries of inherited IRAs have RMDs?

Yes, beneficiaries of inherited IRAs generally must take RMDs. The calculation method and rules depend on the beneficiary’s relationship to the deceased and the type of IRA.

What this page does NOT cover (and where to go next)

• Specific tax implications for your state: State tax laws on retirement income vary. Consult your state’s department of revenue or a tax professional.
• RMD rules for inherited IRAs: The rules for beneficiaries are complex and depend on several factors. Refer to IRS Publication 590-B or consult a financial advisor.
• Strategies for managing RMD income: This guide focuses on calculation; advanced strategies for income management, tax planning, or charitable giving are separate topics.
• Rollover rules for RMDs: While RMDs must be taken, specific rules apply to rolling them over into other accounts, which is a distinct topic.
• The impact of RMDs on Social Security benefits: RMDs are generally considered taxable income, which can affect the taxation of your Social Security benefits. Understanding this interaction requires separate research.