Required minimum distributions (RMDs) are one way the IRS ensures you pay taxes on money you have saved in tax-deferred retirement accounts, such as a 401(k) or traditional IRA.
Since you receive a tax break on the front end, the IRS wants to avoid situations where someone doesn't take any withdrawals and the money grows tax-free indefinitely.
RMDs begin in the year you turn 73 with the exact amount you're required to withdraw determined by your age and account balances. With that in mind, here's how much an RMD is if you have $250,000 in tax-deferred accounts.
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Determining your required minimum distribution
First, find out your account balance at the end of the previous year. Then, look for the life expectancy factor (LEF) corresponding to your age and marital status, which is available from the IRS. To calculate your RMD, you divide your account value by your LEF.
For someone single with $250,000 in their retirement account as of the end of 2024, below are what the LEFs and RMDs would be from ages 73 to 80:
| Age | Life Expectancy Factor | Required Minimum Distribution |
|---|---|---|
| 73 | 26.5 | $9,434 |
| 74 | 25.5 | $9,804 |
| 75 | 24.6 | $10,163 |
| 76 | 23.7 | $10,549 |
| 77 | 22.9 | $10,918 |
| 78 | 22.0 | $11,364 |
| 79 | 21.1 | $11,848 |
| 80 | 20.2 | $12,376 |
Data source: IRS. Required minimum distribution amounts rounded to the nearest dollar.
Failing to take your RMD could result in a penalty equal to 25% of the amount you failed to withdraw. Going back to our example above, a 75-year-old who only withdraws $4,000 instead of $10,163 could owe a penalty of $1,541 (25% of $6,163).
However, if you correct your mistake by taking your RMD within two years of the missed deadline, the penalty decreases to 10% of the missed amount.
That's still a hefty penalty and an easy one to avoid if you make RMDs part of your annual planning around budgeting and taxes in retirement.
