Are you going to be 73 years old or older at some point this year, and do you have money sitting in an individual retirement account? If your answer to both questions is yes, here's the good and bad news: The IRS is going to make you take at least some of this money out of the account soon. It's called a required minimum distribution (or RMD).
But how much? It partially depends on the IRA's value as of the end of last year, but the number will also vary with age. The older you are, the proportionally bigger the required annual withdrawal gets.
To this end -- and just for perspective – here's a rundown of the required minimum distributions for a $1 million retirement account at a range of ages. Notice that the growth of the RMD accelerates as you move toward and past the average life expectancy.
- Age 73: $37,735.85 (or 3.77% of account IRA's year-end value)
- Age 75: $40.650.41 (4.065%)
- Age 80: $49,504.95 (4.95%)
- Age 85: $62,500.00 (6.25%)
- Age 90: $81,967.21 (8.197%)
- Age 95: $112,359.55 (11.236%)
- Age 100: $156,250.00 (15.625%)
- Age 110: $285,714.29 (28.57%)
- Age 120: $500,000.00 (50%)
Note that above age 120, the RMD remains at half of the previous year's ending account value.
There are some exceptions to the IRS' required minimum distribution rules. For instance, Roth IRAs aren't subject to RMDs. And if you're still working and contributing to a 401(k), you're also not required to make annual withdrawals from these workplace accounts.
Required minimum distributions are taxable income, since they were generally funded with untaxed money. RMDs are also supposed to be completed by the end of the calendar year, with the exception of your first one, which can be completed by April 1 of the year after you turn 73. Just be careful waiting until that deadline if this is your first RMD. That would mean two sizable taxable distributions in a single calendar year, possibly pushing you into a higher tax bracket.
