Required Minimum Distributions (RMDs) are the minimum amount you must withdraw from certain tax-advantaged retirement accounts. They begin at age 72 or 73, depending on your situation, and continue indefinitely. Unfortunately, there is no age limit for stopping RMDs. You must continue to take them for the lifetime of the account. You may want to work with a professional financial advisor to help you develop a retirement withdrawal strategy that works for you.
What are the minimum required distributions?
A required minimum distribution is the minimum amount you must withdraw each year from certain tax-advantaged retirement accounts. This law applies primarily to pre-tax accounts like 401(k) plans and IRAs. You are not required to make minimum withdrawals from Roth IRAs, although, in an exception to this rule, you must take minimum distributions from Roth 401(k)s.
The IRS requires minimum distributions to ensure that you eventually pay taxes. Pre-tax accounts represent a basket of money on which you have never paid income or capital gains tax. For some retirees, especially wealthier ones, without an RMD they could sit on that money indefinitely and eventually pass it on to their heirs tax-free. (For more information on how this would work, see our articles on the gradual escape.)
This is why the IRS does not require minimum distributions from Roth IRAs. Since a Roth IRA is an after-tax retirement account, you’ve already paid taxes on the money and the IRS doesn’t need to make sure you make withdrawals.
What are the required minimum distributions?
The exact amount you need to withdraw varies depending on your age and the value of your retirement account. The IRS lists this in publication 590. In it, you can look up your current age and find a life expectancy factor based on that age. You divide the value of your retirement account by this life expectancy factor to determine the amount you need to withdraw.
The required minimum distributions are annual, meaning you can structure these withdrawals as you see fit throughout the year, but you must have reached the minimum amount by December 31. If you don’t, the IRS will charge you a penalty tax. This penalty is usually set at 50% of the difference between what you withdrew and what you should have withdrawn.
For example, let’s say you have a life expectancy factor of 10 and $60,000 in your retirement account. You must withdraw at least $6,000 by the end of the year. If instead you withdraw only $5,000, the IRS will charge you a fee of $2,500.
It is important for investors to know that they do not have to hold this money in cash. You can reinvest this money in a private investment portfolio if you don’t need to spend it.
When do the required minimum distributions begin?
The start date for required minimum distributions has been reversed several times over the years, most recently with the SECURE 2.0 Act. If you turned 72 in or before 2022, you must begin receiving the required minimum distributions from Qualifying Retirement Accounts no later than:
April 1 of the year after you turn 72
For workplace plans, April 1 of the year following your retirement
As of January 1, 2023, the RMD age increases to 73 years. This means that if you turn 72 in 2023 or later, you must start receiving the required minimum distributions from eligible retirement accounts no later than:
April 1 of the year after you turn 73
Or, for workplace plans, April 1 of the year following your retirement
This age limit will increase over the next 10 years to reach 75 in 2033.
For example, let’s say Elizabeth is currently retired and will turn 73 in October 2023. She must begin receiving minimum distributions from her qualified retirement accounts beginning April 1, 2024. On the other hand, let’s say she still working. In this case, the same rule will apply to her IRA, but she can defer withdrawals from her 401(k) until the year after she retires.
When do the minimum required distributions stop?
The required minimum distributions do not stop. There is no maximum age for this rule, and payments are not eliminated on any basis other than finances. Your required minimum distributions are based on an account’s underlying assets, which means that if a retirement account runs out of money, you will no longer have associated withdrawal requirements.
Also note that each category of retirement account is treated separately for RMD requirements. For example, if you have both a 401(k) and an IRA, you will need to calculate and make minimum withdrawals from each account. The amount of money you withdraw from your 401(k) will not apply to the RMD for your IRA. However, if you have multiple IRA accounts, you can withdraw the full amount owed from one wallet.
Finally, if you fail to make minimum withdrawals, the IRS will sometimes waive its penalty fee if you can prove that the shortfall was due to “reasonable error” and you correct it. However, you cannot use excess withdrawals from a past year to meet your RMD requirements for a future year.
There is no maximum age for the required minimum distributions. For any eligible retirement account, you must continue to make these withdrawals indefinitely. This is an important piece of the puzzle to consider in any retirement withdrawal strategy so you can be prepared for your entire life.
Retirement Planning Tips
A financial advisor can help you manage your wealth or prepare for retirement, but they can also help you create a retirement plan once you get there. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three vetted financial advisors who serve your area, and you can interview your advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
If the IRS sets your minimum distributions, it’s important to plan for the type of distributions you want to take out of your portfolio.
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