When do I take a required minimum distribution?

After years of working and contributing to a retirement plan, you are finally ready to retire and start using the money you have worked so hard to save. While you can decide how much you want to withdraw, you will generally have to take a required minimum distribution (RMD) each year from your retirement accounts once you reach the applicable RMD age* as defined in the tax law.

*If you attain age 72 after 2022 and age 73 before 2033, your applicable RMD age is 73. If you attain age 73 after 2032, your applicable RMD age is 75. If you were born prior to July 1, 1949, your applicable RMD age is 70 ½, and if you were born on or after July 1, 1949, and before January 1, 1951, your applicable RMD age is 72.

What kinds of accounts have RMDs?

Most types of retirement savings programs, excluding Roth IRAs, has a distribution requirement for the account holder. This applies to employer-sponsored retirement plans like 401(k), 403(b), 457, and SIMPLE plans, as well as traditional IRAs.

When do I have to start taking RMDs?

In most cases, retirement account owners are expected to start taking annual RMDs when they reach their applicable RMD age.² You will have until the end of each year to take your RMD. There’s a three-month grace period on the deadline for the first RMD you take out, until April 1 of the year after you reach your applicable RMD age.

How much do I have to take out each year?

As a general rule, your RMD amount is determined by your current age and the balance that was in your account at the end of the previous year.³ Although your plan may tell you what your annual RMD is, it is ultimately your responsibility to figure out how much you need to take and request that amount be distributed to you that year. To help you determine the amount you need to take for RMDs, the Financial Industry Regulatory Authority offers an online tool at http://tools.finra.org/rmd that can perform the necessary calculations. Alternatively, you can consult your tax advisor for assistance with the calculation.

What if I have multiple retirement accounts?

If you have more than one retirement account, you need to take separate RMDs from each one, except if you have multiple 403(b) or traditional IRA plans. In that case, you can combine like plans into one RMD. For example, if you have two 403(b) plans, you can calculate the RMD from each, add the amounts together, and take the total RMD from either 403(b) account. The same applies to traditional IRAs, but not to 401(k) or 457(b) plans – each one of these will require it’s own RMD.

Are there penalties associated with RMDs?

If you don’t take an RMD, you’ll have to pay an excise penalty equal to 25% of what you should have taken out. This excise tax is reduced to 10% if you correct it during a specified correction window.

¹Although owners of Roth IRAs do not have to take RMDs during their lifetimes their beneficiaries will be subject to RMD rules. Effective for taxable years beginning after December 31, 2023, lifetime required minimum distributions do not apply for designated Roth accounts. 

²Employer-sponsored retirement plans may allow those participants who continue to work past the applicable RMD age and do not own more than 5% of the company to delay taking RMDs until their actual retirement. This option is not available for assets held in IRAs.

³A different formula may be used to calculate RMDs when a spouse is the sole beneficiary for the original account owner and is also more than 10 years younger.

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