Know Your Required Minimum Distributions (RMD) Deadlines
If you are using retirement plans, such as a 401(k) or, traditional Individual Retirement Account (IRA), or similar tax-deferred accounts, you have likely encountered the term Required Minimum Distributions (RMDs). And if you have not? Well, now is the time to get familiar. Failing to take RMDs can result in penalties and taxes down the line. It can also impact your financial liquidity in retirement. And you would not want that, would you?
Understanding how RMDs work is important for both those who have already retired as well as those who may be years away from retirement. RMD rules affect how and when you withdraw your money, how much you can withdraw and how much you will owe in taxes. It also helps you find out how long your savings will last.
Let’s break down the IRA and 401(k) required minimum distributions in the article.
Table of Contents
What are the required minimum distributions?
RMDs are mandatory withdrawals that you must take out from certain retirement accounts starting from a specific age. As of now, in 2025, RMDs are mandated in the year you turn 73. Most tax-deferred retirement accounts are subject to RMDs. That includes:
- 401(k) plans
- 403(b) plans
- 457(b) plans
- Traditional IRAs
- Savings Incentive Match Plan for Employees (SIMPLE) IRAs
- Simplified Employee Pension (SEP) IRAs
- Profit-sharing plans
- Other defined contribution plans
If you are using any of these plans, turning 73 this year, or are simply curious about how these distributions work, it is time to pay attention to the RMD schedule, calculation, and other relevant rules.
Now, you may be wondering why Roth IRAs are not a part of this list. Well, they get a pass since these are funded with your after-tax dollars, and so they are not subject to RMD rules, at least while you are alive. You are not required to take RMDs from your Roth IRA in your lifetime.
Let’s move on to how much you have to withdraw in RMDs each year
The Internal Revenue Service (IRS) uses a life expectancy table to calculate your RMDs each year. Basically, they look at your account balance as of December 31 of the previous year. This is then divided by a factor based on your age. You can do the math yourself, or better yet, have your financial advisor help you out.
You are free to take out more than the minimum distribution in a year, but you must take out at least the minimum amount. However, keep in mind that even if you withdraw any excess in one year, this does not carry over to future RMDs. Say you withdraw $1,000 more than your minimum RMD in 2025 and might think that you can subtract this from next year’s RMD. However, this is not possible. Each year’s RMD must be calculated and taken based on that year’s rules and account balances.
What happens if you do not take an RMD or delay it?
If you miss your RMD deadline, the IRS can impose a penalty of up to 25% of the amount you were supposed to withdraw. This part stings, and for a reason. 25% can be a big chunk out of your savings. But the good news is that you can fix the mistake. If you file a correction within two years, you might be able to reduce that penalty to 10%. Still, this can be a considerable blow to your savings.
You do have a one-time option to delay your first RMD until April 1 of the following year. However, if you delay the first RMD, you will still need to take your second one by December 31 of the same year. So, you will end up with two taxable withdrawals in one calendar year, which will bump you into a higher tax bracket. So, you need to understand that the delay, while nice in theory, does require some considerations.
You can also delay RMDs if you are still working, but this is only possible in some cases. If you are part of a workplace retirement plan like a 401(k) and you are still working past age 73, you might be able to delay your RMDs until the year you retire. However, this only applies to your current employer’s plan. If you have any old 401(k)s or IRAs sitting around from earlier jobs or if you own more than 5% of the business that sponsors the plan, you will need to start RMDs at 73 regardless.
Do inheritors have to comply with RMDs as well?
Yes, RMDs also apply to your loved ones who inherit your retirement accounts. Before 2020, beneficiaries had the option to stretch out RMDs over their own lifetimes. But the SECURE Act changed all that. Now, for most people who inherit your retirement accounts, the entire balance must be withdrawn within 10 years of your death. That said, there are exceptions. The 10-year rule does not apply if the beneficiary is:
- Your surviving spouse
- A minor child until they become an adult
- A disabled or chronically ill person
- Someone less than 10 years younger than you
These individuals may still be able to take smaller withdrawals over time instead of emptying the account all at once. But if you leave your retirement account to a non-spouse beneficiary or someone not included in this list, such as an adult child, they generally have to take out all the funds from the account within 10 years.
RMD retirement distributions minimum age as of 2025
Starting in 2023, the age at which you must begin taking RMDs increased to 73. So, if you turn 73 in 2024, you have a one-time option to delay your first RMD until April 1 of the year after you turn 73, in this case, April 1, 2025. But if you delay that first withdrawal, you will still need to take your second RMD by December 31 of the same year, as discussed above. Not only does this result in two taxable withdrawals in one year, but it also increases your Medicare premiums as it puts you in a higher tax bracket.
Every year after that, RMDs are due by December 31 of each year. So, if you turn 73 in 2024:
- Your first RMD is due by April 1, 2025, and will be based on your account balance as of December 31, 2023.
- Your second RMD is due by December 31, 2025, and will be based on your balance from December 31, 2024.
- After that, it is one RMD per year by December 31.
If you are still working and your plan allows it, you may be able to delay taking RMDs from your current employer’s 401(k) plan until you actually retire, even if you are over 73. However, it is important to note that this rule does not apply to IRAs. For IRAs, including SEP and SIMPLE IRAs, RMDs must start by April 1 of the year after you turn 73, no matter what.
How can you calculate the required minimum distribution?
Turned 73, but how do you actually figure out how much to take out? Let’s walk through it step by step:
Step 1: Take a look at your account balance
Start with looking at your retirement account balance as of December 31 of the previous year. For example, if you are calculating your RMD for 2025, you will use the account balance on December 31, 2024. You need to do this for all your accounts individually, such as a Traditional IRA, 401(k), 403(b), or others.
Note: If you have multiple IRAs, you will calculate the RMD for each one individually, but you can withdraw the total amount from any one or more of those accounts. For 401(k)s or other employer plans, you have to take RMDs from each plan separately.
Step 2: Look up your life expectancy factor
Your RMD is based on your age and your expected lifespan. The IRS uses different types of tables. You can find all this information in IRS Publication 590-B or on the IRS website.
Here’s how you know which table to use:
- Uniform Lifetime Table (Table III): If your spouse is not your sole beneficiary, or if they are but are less than 10 years younger than you, this is your table.
- Joint Life and Last Survivor Table (Table II): If your spouse is your only beneficiary and is more than 10 years younger than you, you can use this table.
- Single Life Expectancy Table (Table I): This can be used by beneficiaries who inherit retirement accounts, such as in the case of inherited IRAs.
Step 3: Do the math
Once you have your account balance and your distribution factor, just divide the two, as explained below:
Account balance/ Distribution factor = RMD
This will be the minimum you need to withdraw for the year. You can always take more, depending on your need, but you cannot take less.
If you find this confusing or would prefer to have someone else calculate it for you, you can contact your IRA custodian or 401(k) retirement plan provider. Your bank or broker can also calculate your RMDs. Additionally, you can use online tools, such as the Financial Industry Regulatory Authority (FINRA) RMD Calculator, to confirm. However, you must understand that while your IRA custodian or retirement plan administrator might help you out by calculating your RMD, at the end of the day, you are responsible for making sure the right amount is taken and taken on time.
The calculation can differ a bit if you inherited an IRA. In this case, the calculation depends on when the original account holder passed away and your relationship with them. If the person died in the year you are calculating for, the RMD is whatever amount they would have been required to withdraw if they had not passed away. Starting the year after their death, the rules depend on whether you are a spouse, child, or someone else. In most cases, non-spouse beneficiaries must empty the account within 10 years of the account holder’s death. There are some exceptions to this, as highlighted above.
How can you prepare for your RMDs?
Start by asking yourself a simple question: What will you do with your RMD?
If you need the money for daily expenses, like bills, groceries, gas, healthcare, travel, or more, just make sure your withdrawal schedule lines up with your spending needs, so you have enough money in your bank to cover essentials.
But if you do not need the RMD right away, in that case, you must think about how to put your money back to work. Your retirement needs may be rising. Inflation can also impact your savings. So, you might consider reinvesting your unused RMDs. You can consider dividend-paying stocks, mutual funds, bonds, and others, depending on your goals and risk tolerance. This way, your money keeps growing even though you had to take it out of the original retirement account.
Another thing to note is that RMDs are taxable. Whatever you withdraw from your traditional IRA, 401(k), or other tax-deferred account is added to your taxable income for the year. This could push you into a higher tax bracket and even impact your Medicare premiums. So, before you make any large withdrawals, take a good look at your overall income. You may be withdrawing Social Security benefits. You could also have other income from investments. Take a comprehensive view of your total income so you know where you stand and can make better withdrawal decisions.
Another factor to pay attention to is that while RMDs apply to each retirement account separately, you may be able to combine distributions from IRAs. However, workplace plans like 401(k)s and 403(b)s usually require separate RMDs from each account. That is why it is crucial to keep track of all your retirement accounts. If not, you could end up paying penalties on unwithdrawn RMDs from neglected or forgotten accounts.
Final words
Make sure you understand the RMD deadlines and rules that apply to all accounts. If you miss a deadline or withdraw less than you are required to, you could end up with taxes and penalties. Moreover, these rules can and do change. So, staying up to date is part of protecting the nest egg. Required minimum distribution calculation and other rules may also sound confusing. A financial advisor can walk you through the details and help you avoid unnecessary taxes or penalties. You may use the free advisor match tool to find a suitable advisor who can best fulfill your financial requirements.
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