Once you reach age 73, you're required to begin withdrawing funds from tax-deferred accounts like a 401(k), 403(b), and traditional IRA. These are called required minimum distributions (RMDs) and are a way for the IRS to ensure it gets its tax money on the back end after providing the up-front tax break.
Let's take a look at how they work so you can avoid unnecessary penalties.
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Calculating your required minimum distribution (RMD)
Two factors determine your RMD: your account balance(s) at the end of the previous year and the age you're turning in the current year. Then, it's a two-step process to determine what you must withdraw.
First, you look at the appropriate IRS-provided life expectancy table. The Uniform Lifetime Table applies to most retirees, while the Joint Life Expectancy Table applies if your sole beneficiary is your spouse and they're more than 10 years younger than you.
The number associated with your age on the applicable table is your life expectancy factor (LEF).
The second step is dividing your account balance(s) at the end of the previous year by your LEF.
To see the calculation in action, assume you're single and had $1 million in your account(s) to end 2024. Here's what your RMDs would be. (Note you have to take RMDs past age 80.)
| Age | Life Expectancy Factor | Required Minimum Distribution (balance divided by LEF) |
|---|---|---|
| 73 | 26.5 | $37,736 |
| 74 | 25.5 | $39,216 |
| 75 | 24.6 | $40,650 |
| 76 | 23.7 | $42,194 |
| 77 | 22.9 | $43,668 |
| 78 | 22.0 | $45,455 |
| 79 | 21.1 | $47,393 |
| 80 | 20.2 | $49,505 |
Calculations by author. RMDs rounded to the nearest dollar.
Skipping an RMD could result in 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 should make a diligent effort to avoid any penalties by staying up to date on your annual RMD obligations.
