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Required Minimum Distributions (RMDs) and what they mean

You've spent years saving for retirement, but you can't keep those funds in your account indefinitely. Generally, once you reach a certain age, you are required to start taking withdrawals, known as required minimum distributions (RMDs), from certain retirement accounts.

Taking an RMD isn鈥檛 simply withdrawing some money from your account. If you do not take out the required amount each year, you could face an IRS penalty. Here鈥檚 what you need to know about managing your RMDs.

What is an RMD?

RMDs are the minimum amounts you must withdraw from certain pre-tax, tax-deferred IRAs and retirement plans and accounts each year to satisfy federal tax rules once you reach the applicable RMD age.

Who needs to take required minimum distributions?

Individuals age 73 or older, depending on their birth year, who have a traditional IRA, SIMPLE IRA, SEP IRA or retirement plan like a 401(k), 403(b), governmental 457(b), profit-sharing plan or other tax-qualified pension or retirement plan generally need to take RMDs.

Why do RMD age requirements exist?

RMDs are required from most types of tax-qualified retirement plans and accounts because they generally receive favorable tax treatment. Federal law requires you to begin withdrawing money to ensure that savings that have benefited from tax-deferred growth are eventually drawn down and subject to applicable taxes, while providing you with retirement income.

How much do I need to take?

That depends on the value of your accounts and your age, and in certain circumstances, your spouse鈥檚 age. Your RMD amount varies by year and is generally calculated by dividing your prior year-end account balance by the applicable life expectancy factor provided by the IRS. You should consult your financial professional or refer to 鈥溾�� in IRS Publication 590-B.

What about taxes?

If your contributions to a retirement account were tax deductible, the taxable portion of your RMD is generally considered ordinary income and will be taxed at your applicable income tax rate. This means that RMDs from traditional retirement accounts, like IRAs or 401(k)s, are generally taxed as ordinary income because the contributions were made with pre-tax dollars.

Are there exceptions to RMD rules?

In the calendar year you turn 73^*, you can defer your first RMD until April 1 of the following year, but you will then be required to take two RMDs in that same year. If you are still working at your applicable RMD age and contributing to a 401(k) plan, you generally don't have to take an RMD from that plan until you retire, provided you meet the applicable requirements. Roth IRAs are not subject to lifetime RMDs for the original owner, and beginning in 2024, Roth 401(k) and Roth 403(b) accounts have also been exempt from lifetime RMDs.

What happens if I don't take an RMD?

If you fail to withdraw all or part of your RMD by the due date, the amount not withdrawn may be subject to an IRS excise tax of 25%. However, the tax may be reduced to 10% if you correct the missed RMD within the time allowed by the IRS.

Key takeaways about required minimum distributions

• Know what types of retirement accounts you have and which ones require RMDs.
• Remember that when you reach your applicable RMD age, you're generally required to take money from certain tax-deferred retirement accounts, with some exceptions.
• If you don't take enough money out of your account to satisfy your RMD, or if you don't withdraw any at all, you can be penalized by the IRS.
• Work with your financial professional to help ensure you follow IRS rules and determine which retirement income plan can help you retire your way.

Frequently asked questions about required minimum distributions

What is a required minimum distribution?

RMDs are the minimum amounts you must withdraw from certain tax-deferred IRAs and retirement plans and accounts each year to satisfy federal tax rules once you reach your applicable RMD age.

At what age do I need to start taking RMDs?

For most people, RMDs generally begin at age 73 or 75, depending on their birth year. Your specific RMD start date can depend on your birth year and the type of retirement account you have.

Which retirement accounts require RMDs?

RMDs generally apply to traditional IRAs and many employer-sponsored retirement plans, such as 401(k), 403(b) and governmental 457(b) plans. Roth IRAs and designated Roth accounts in 401(k) and 403(b) plans generally do not require RMDs while the owner is alive. The rules can vary by account type and individual circumstances.

Do Roth 401(k)s have requ ired minimum distributions?

No. Roth 401(k) accounts generally are not subject to RMDs during the account owner鈥檚 lifetime.

What happens if I miss an RMD?

If you don鈥檛 take your full RMD by the deadline, the amount you should have withdrawn may be subject to a 25% tax. The penalty may be reduced to 10% if the missed RMD is corrected within the IRS correction period.

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Any information regarding taxation contained herein is based on our understanding of current tax law. The tax and legislative information may be subject to change and different interpretations. We recommend that you seek professional legal advice for applicability to your personal situation.

Required Minimum Distribution as defined by Internal Revenue Code Section 401(a)(9).

^*Under current federal tax law, most individuals must begin taking required minimum distributions from traditional IRAs and most retirement plans when they reach their applicable RMD age. The required beginning age is currently 73 and is scheduled to increase to age 75 beginning in 2033 for eligible individuals under the SECURE 2.0 Act. The specific age that applies depends on your date of birth and other circumstances.