What Is a Required Minimum Distribution (RMD)? Rules and Calculation

Search Fintrev

Search our guides, reviews and glossary.

A required minimum distribution (RMD) is the smallest amount the IRS requires you to withdraw each year from a tax-deferred retirement account once you reach a set age. It applies to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s and similar employer plans, and it is calculated by dividing the account’s balance at the end of the prior year by a life expectancy factor from an IRS table. Because money in these accounts has never been taxed, the RMD makes sure that tax is eventually paid.

What Is a Required Minimum Distribution (RMD)?

Traditional retirement accounts give you a tax deduction or pre-tax contribution up front and let the investments grow without annual tax. That deferral cannot last forever. An RMD is the mechanism that ends it gradually: starting at a specified age, the account owner must take out at least a calculated slice of the balance every year and report it as taxable income.

The required amount is designed to spread withdrawals across your remaining life expectancy. Early on, the slice is small. Each year the divisor shrinks, so the required percentage rises. Nothing forces the account to be emptied by a particular age, but the rule ensures a steady flow of taxable distributions.

RMDs apply to accounts funded with pre-tax money:

• Traditional IRAs, including rollover IRAs
• SEP IRAs and SIMPLE IRAs
• 401(k), 403(b) and 457(b) plans
• The federal Thrift Savings Plan and other defined contribution plans

Roth IRAs are exempt while the owner is alive because contributions were made with after-tax dollars and qualified withdrawals are tax-free.

How a Required Minimum Distribution Works

When RMDs start

The age at which RMDs begin depends on your birth year, because Congress has raised it twice in recent years.

The 70½ threshold applied before the SECURE Act of 2019 took effect in 2020. That law raised the age to 72, and the SECURE 2.0 Act of 2022 raised it to 73 starting in 2023, with a scheduled increase to 75. Someone born in 1960 has a first RMD year of 2035.

The first-year exception and the annual deadline

Your first RMD has a special deadline: April 1 of the year after you reach the RMD age. This date is called the required beginning date. Every RMD after that must be taken by December 31 of the year it applies to.

Delaying the first one has a cost. If you turn 73 in a given year and wait until the following April, you must take two RMDs in that second calendar year: the delayed first one and the regular second one. Both count as income in the same tax year, which can push you into a higher bracket.

Within the year, timing is flexible. You can take the RMD in a single lump sum, in monthly or quarterly installments, or at the very end of the year to keep the money invested longer.

The still-working exception

If you are still employed past the RMD age, many employer plans let you postpone RMDs from that employer’s plan until April 1 of the year after you retire. The exception applies only to the plan at your current employer. It does not cover IRAs or plans from former employers, and it is not available to someone who owns more than 5% of the business sponsoring the plan. Not every plan offers it, so the plan’s own rules determine eligibility.

Calculating Required Minimum Distribution

The RMD calculation for a traditional IRA takes three steps:

1. Find the account’s fair market value as of December 31 of the previous year.
2. Look up the distribution period (the life expectancy factor) for the age you reach on your birthday this year.
3. Divide the balance by that factor.

RMD = Prior year-end balance ÷ Distribution period

Which table you use depends on your situation:

• Uniform Lifetime Table: used by most account owners.
• Joint Life and Last Survivor Expectancy Table: used when your spouse is the sole beneficiary and is more than 10 years younger than you. This produces a longer distribution period and a smaller RMD.
• Single Life Expectancy Table: used by many beneficiaries of inherited accounts.

The IRS updated its tables in 2022 to reflect longer life expectancies, so older worksheets will give the wrong answer. Your account custodian or plan administrator will usually calculate the RMD for you, but the owner remains responsible for withdrawing the correct amount.

Interpreting a Required Minimum Distribution

Because the divisor falls each year, the RMD works like a rising withdrawal rate. A factor of 26.5 at age 73 equals about 3.8% of the balance. By age 75 the factor is 24.6, or roughly 4.1%. The dollar amount can still fall if markets drop, since the formula always uses last year’s December 31 balance, not the balance on the day you withdraw. A bad year shrinks next year’s required withdrawal, while a sharp drop in January does not change the current year’s amount.

Example of a Required Minimum Distribution

Hypothetical example. Maria turns 74 this year. Her traditional IRA was worth $300,000 on December 31 of last year, and her beneficiary is not a spouse more than 10 years younger, so she uses the Uniform Lifetime Table. The distribution period for age 74 is 25.5.

$300,000 ÷ 25.5 = $11,764.71

That is the minimum she must withdraw by December 31. Any shortfall would be subject to the excise tax.

Now suppose her IRA ends the year at $310,000. Next year she will be 75, with a factor of 24.6:

$310,000 ÷ 24.6 = $12,601.63

Her balance grew only about 3%, but the required withdrawal rose about 7% because the divisor fell.

Multiple accounts

How you take RMDs from several accounts depends on the account type:

• IRAs: Calculate the RMD for each traditional, SEP and SIMPLE IRA separately, then add them up. You may withdraw the total from one IRA or split it among them however you like.
• 403(b)s: The same aggregation is allowed among your 403(b) accounts.
• 401(k)s and 457(b)s: Each plan’s RMD must be taken from that plan. You cannot satisfy a 401(k) RMD with an IRA withdrawal, or the reverse.

If Maria also had a second IRA requiring $4,000, she could take the combined $15,764.71 entirely from either account. If the second account were a 401(k), she would have to take its RMD from the 401(k) itself.

Why Is a Required Minimum Distribution Important?

Taxes on RMDs

RMDs from pre-tax accounts are taxed as ordinary income at your federal rate for that year, and often by your state as well. They are not eligible for capital gains rates, even if the money came from stock growth. You can ask the custodian to withhold federal tax from the distribution.

The added income can have knock-on effects beyond the bracket itself. A larger RMD can raise the share of Social Security benefits that is taxable and can increase Medicare premiums tied to income. That is why large tax-deferred balances later in life may call for planning years ahead, for example through partial Roth conversions before RMDs begin.

What happens if you miss an RMD

If you fail to withdraw the full amount, the IRS imposes an excise tax on the shortfall. SECURE 2.0 cut this from 50% to 25%, and to 10% if you take the missed distribution and file a corrected return within the correction window, generally about two years. The tax is reported on Form 5329, and the IRS can waive it entirely when the shortfall resulted from reasonable error and you are taking steps to fix it.

Tip: If you don’t need the money, an RMD can be reinvested in a taxable brokerage account. It cannot be rolled back into an IRA or employer plan or converted to a Roth IRA, but if you have earned income, the cash could fund a separate Roth IRA contribution within the normal limits.

Qualified charitable distributions

IRA owners age 70½ or older can send money directly from the IRA to a qualified charity through a qualified charitable distribution (QCD). A QCD counts toward that year’s RMD and is excluded from taxable income, up to an annual limit set by law. This option is available from IRAs, not from 401(k)s while the money remains in the plan.

RMDs and Inherited Accounts

Different rules apply when you inherit a retirement account, and the date of the original owner’s death matters.

• Owner died before January 1, 2020: Beneficiaries could generally stretch RMDs over their own life expectancy using the Single Life Expectancy Table.
• Owner died after December 31, 2019: The SECURE Act rules apply and sort heirs into categories.

Eligible designated beneficiaries may still take distributions over their life expectancy. This group includes a surviving spouse, the owner’s minor child (until reaching majority), a disabled or chronically ill individual, and a person not more than 10 years younger than the owner.

Other designated beneficiaries, such as most adult children, must empty the account by the end of the 10th calendar year after the year of the owner’s death. If the owner had already started RMDs, annual distributions may also be required during those 10 years.

Non-designated beneficiaries, such as an estate, may face a five-year deadline when the owner died before the required beginning date. Some trust funds can qualify as designated beneficiaries if they meet IRS requirements.

Year of death: If the owner died after RMDs had begun and had not yet taken that year’s full amount, the beneficiary must withdraw the remainder, using the same amount the owner would have used.

Surviving spouses have the most choice. They can often treat an inherited IRA as their own, which resets RMDs to their own age and table.

Important: Inherited Roth IRAs are also subject to the beneficiary rules above, even though the original owner never had RMDs. Qualified withdrawals remain tax-free, but the timing deadlines still apply.

Limitations of a Required Minimum Distribution

The RMD is a compliance minimum, not a spending plan. It ignores your actual expenses, other income, investment mix and longevity, so it can leave money in the account that you need now or force out money you would rather leave invested.

Several common points of confusion are worth separating:

• RMD vs. early withdrawal penalty: The 10% additional tax on distributions before age 59½ is a separate rule.
• RMD vs. a withdrawal strategy: Rules like a fixed percentage withdrawal are personal budgeting choices. The RMD is a legal requirement that sets only the minimum.
• Pre-tax vs. Roth money: RMDs apply to pre-tax 401(k) balances. Roth 401(k) money is exempt for the owner, but if one 401(k) holds both, only the pre-tax portion generates a required withdrawal.
• In-kind distributions: An RMD can be satisfied by transferring shares to a taxable account instead of selling. The fair market value on the transfer date counts toward the requirement and is taxable.

FAQs

The Bottom Line

Anyone holding pre-tax money in a traditional IRA, 401(k) or similar plan will face RMDs, and inheritors face their own deadlines. Because the required withdrawal rises as the divisor falls and counts as ordinary income, owners with large balances can plan ahead with partial Roth conversions or qualified charitable distributions. Taking the full amount on time avoids the excise tax.