One of the pros of retirement accounts like 401(k)s and traditional IRAs is that contributions can lower your taxable income.
However, getting a tax break upfront doesn't mean you're off the hook entirely; you'll eventually have to pay taxes on your withdrawals in retirement. And to prevent situations where someone doesn't make any withdrawals to avoid those taxes, the IRS has required minimum distributions (RMDs) that begin the year you turn 73.
The amount you're required to withdraw each year depends on your account balance and age. As an example, let's walk through the RMD for someone with $100,000 in their retirement account.
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Calculating your required minimum distribution
There are three steps to calculating your RMD.
First, find your account balance at the end of the previous year. Next, look for the life expectancy factor (LEF) corresponding to your age and marital status (the Internal Revenue Service provides these numbers). Lastly, divide your account value by your LEF.
Below are the RMDs for someone single with $100,000 in a retirement account as of the end of 2024:
| Age | Life Expectancy Factor | Required Minimum Distribution |
|---|---|---|
| 73 | 26.5 | $3,774 |
| 74 | 25.5 | $3,922 |
| 75 | 24.6 | $4,065 |
| 76 | 23.7 | $4,219 |
| 77 | 22.9 | $4,367 |
| 78 | 22.0 | $4,545 |
| 79 | 21.1 | $4,739 |
| 80 | 20.2 | $4,950 |
Data source: IRS and author calculations. RMDs rounded to the nearest dollar.
Skipping an RMD isn't advisable because you could face a penalty of 25% of the amount you failed to withdraw. If you correct your mistake and take your RMD within two years of the missed deadline, you can reduce the penalty to 10%.
In either case, you can avoid penalties and surprises in your budget by ensuring you're up to date on your annual RMD obligations.
