What is Required Minimum Distribution (RMD)?

Understanding RMDs

RMDs exist to ensure retirement accounts serve their intended purpose - funding retirement rather than avoiding taxes or passing on untaxed wealth. They apply to accounts like Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, and other defined contribution plans or employer-sponsored retirement plans. Since these accounts grow tax-deferred, the IRS eventually requires distributions to collect taxes.

Roth IRAs, however, do not have RMDs during the original owner’s lifetime because they are funded with after-tax dollars. Roth 401(ks) were previously subject to RMDs, but starting in 2024, they are no longer required. For more information about IRA distributions, check out IRS Publication 590-B.

When Do RMDs Begin?

The SECURE 2.0 Act changed the RMD starting age. If you turned 72 after January 1, 2023, your RMDs begin at age 73. However, if you turned 72 in 2022 (or before), the previous rules apply, meaning you should have started taking RMDs at 72.

For inherited IRAs - which are plans you inherit after the death of the plan owner (after December 31, 2019) - most non-spouse beneficiaries must withdraw the full balance within 10 years. Certain exceptions apply for eligible beneficiaries.

How to Calculate Your RMD

There are a few factors involved in calculating your RMD, but you'll want to pay specific attention to the life expectancy factor as well as your account balance. Custodians typically calculate the RMD based on the balance they hold and inform the customer, so it may be helpful to check with your custodian. Additionally, the IRS.gov website offers two helpful life expectancy tables to determine your distribution period.

Uniform Lifetime Table

The IRS Uniform Lifetime Table (Table III) is used by most retirees who are unmarried, married to a spouse less than 10 years younger, or married to a spouse who isn't the sole beneficiary of their retirement account.

Example RMD Calculation:

• Age: 75
• Retirement Account Balance:  $100,000 
• Life expectancy factor (from the IRS Uniform Lifetime Table (Table III)): 24.6
• Calculation: $100,000 ÷ 24.6 = 4,065.04

RMD = $4,065.04

Joint and Last Survivor Table

The IRS Joint and Last Survivor Table (Table II) is used by retirees who are married with a spouse who is more than 10 years younger and is the sole beneficiary of their retirement account.

Example RMD Calculation:

Example RMD Calculation:

• Spouse’s age: 50
• Retirement account balance: $100,000
• Life expectancy factor: 36.7 (from IRS Joint and Last Survivor Table (Table II))
• Calculation: $100,000 ÷ 36.7 = $2,724.80

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How to Take Your RMD

The April 1st deadline following the year you turn 73 is the date by which you must take your first RMD. Every year after that, the deadline is December 31. You can withdraw the full amount at once or in smaller distributions throughout the year, as long as you meet the total required amount.

Tax Implications of RMDs

RMDs are considered taxable income and are taxed at your ordinary income tax rate. These withdrawals may push you into a higher tax bracket, affect Social Security benefits, and increase Medicare premiums. If you have additional sources of income, proper tax planning is essential.

What Happens if You Don’t Take Your RMD

If you fail to take your RMD, miss the deadline at the end of the calendar year, or withdraw less than the required amount each year, you could face significant financial penalties. As of 2025, the IRS imposes a hefty 25% excise tax on any amount that you were supposed to take but didn't. To paint a painful picture, withdrawing only $3,000 when your RMD is $5,000 would result in a $500 penalty on the $2,000 shortfall.

Failing to withdraw your full RMD amount results in penalties. Starting in 2025, the IRS imposes a 25% excise tax on any amount not withdrawn.

Protecting Your Hard-Earned Savings

As the account holder, it's crucial to stay on top of your annual RMD amounts and use the provided tables to make sure your calculations match those outlined. Remember, even if your financial position doesn't require you to access your retirement income once you hit your 70s, the IRS certainly does, and withdrawing at least your Required Minimum Distribution will help you minimize unnecessary taxes and penalties and make the most of your hard-earned savings.

How PensionBee Can Help

PensionBee simplifies managing your savings by rolling your old 401(k)s into one easy-to-use IRA, making retirement planning accessible to everyone. With PensionBee, you can take control of your financial future, ensuring a secure and stress-free retirement. Start planning today for a brighter tomorrow.

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