Aside from allowing you to proactively save and invest for retirement, the major benefit of using retirement accounts like a 401(k) or traditional IRA is the up-front tax break you get by reducing your taxable income with contributions. The downside is that you must pay taxes on withdrawals in retirement.
To avoid situations where someone doesn't make any withdrawals so they don't ever have to pay taxes, the IRS enacts required minimum distributions (RMDs), which begin the year you turn 73. The exact amount of these RMDs will depend on your current age and account balance at the end of the previous year.
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How to calculate your required minimum distribution
You can calculate your RMD in three steps:
- 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. Most people will use the uniform lifetime table, except those whose sole beneficiary is their spouse who is more than 10 years younger than them.
- Divide your account value by your LEF.
For those using the uniform lifetime table, below are the RMDs for people with $500,000 in a retirement account as of the end of 2024:
| Age | Life Expectancy Factor | Required Minimum Distribution |
|---|---|---|
| 73 | 26.5 | $18,868 |
| 74 | 25.5 | $19,608 |
| 75 | 24.6 | $20,325 |
| 76 | 23.7 | $21,097 |
| 77 | 22.9 | $21,834 |
| 78 | 22.0 | $22,727 |
| 79 | 21.1 | $23,697 |
| 80 | 20.2 | $24,752 |
Data source: IRS. RMDs rounded to the nearest dollar.
It's important to be aware of your RMDs because not taking them (whether accidentally or intentionally) will result in a 25% penalty of the amount you failed to withdraw. If you correct your mistake within two years, this penalty will be reduced to 10%.
