Although retirement accounts like 401(k)s and traditional IRAs give you a tax break by lowering your taxable income, that doesn't mean you're clear of taxes completely. Instead, you're responsible for paying taxes on your withdrawals in retirement.
To prevent situations in which someone doesn't make any withdrawals to avoid taxes in retirement, the IRS has required minimum distributions (RMDs) that begin the year you turn 73.
The amount of your RMD depends on a few factors, including the size of your retirement account. To see it in action, let's walk through the RMD for someone with $750,000 in their retirement account.
Calculating your required minimum distribution
There are three steps to calculating your RMD:
- Find your account balance at the end of the previous year.
- Look for the life expectancy factor (LEF) corresponding to your age and marital status (the Internal Revenue Service (IRS) provides these numbers).
- Divide your account value by your LEF.
Below are the RMDs for someone single with $750,000 in a retirement account as of the end of 2024:
| Age | Life Expectancy Factor | Required Minimum Distribution on $750,000 |
|---|---|---|
| 73 | 26.5 | $28,301 |
| 74 | 25.5 | $29,412 |
| 75 | 24.6 | $30,489 |
| 76 | 23.7 | $31,646 |
| 77 | 22.9 | $32,754 |
| 78 | 22.0 | $34,091 |
| 79 | 21.1 | $35,545 |
| 80 | 20.2 | $37,128 |
Data source: IRS and author calculations. RMDs rounded to the nearest dollar.
Skipping your RMD could mean facing a penalty of 25% of the amount you failed to withdraw. If the mistake is corrected within two years of the missed deadline, the penalty will be reduced to 10%.
