Tax-deferred accounts like traditional IRAs and 401(k) plans allow workers to delay income tax on qualified distributions, provided they meet income-based eligibility requirements. However, the government will not let you withhold tax payments indefinitely.
At a certain age, tax-deferred retirement account holders must start taking required minimum distributions (RMDs), meaning they must withdraw a percentage of their account each year or face penalties. As those RMDs happens, the contributions and any investment gains are subject to income tax.
Read on to learn more about RMDs, including which account types are impacted, when withdrawals begin, and how to calculate the withdrawal amount for a $750,000 retirement account.
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The account types subject to required minimum distributions (RMDs)
A required minimum distribution (RMD) is the smallest amount of money that retirees must withdraw from tax-deferred accounts each year. RMD rules apply to account holders and beneficiaries with the following plans:
Importantly, RMD rules do not apply to Roth accounts while the original owner is alive, but beneficiaries of Roth accounts must abide by RMD rules.
Generally, account holders have to take RMDs by Dec. 31 each year. The first RMD is an exception; it can be postponed until April 1. For instance, those who turned 73 in 2025 could delay their first RMD until April 1, 2026. But all subsequent RMDs must be completed by Dec. 31 of the applicable year.
The age at which required minimum distributions (RMDs) begin
The age at which required minimum distributions begin depends on when you were born.
|
Account Holder's Birth Date |
Age When RMDs Begin |
|---|---|
|
Before July 1, 1949 |
70 1/2 |
|
July 1, 1949, to Dec. 31, 1950 |
72 |
|
January 1, 1951, to Dec. 31, 1959 |
73 |
|
After Dec. 31, 1959 |
75 |
Data source: Internal Revenue Service.
Anyone who does not complete their RMD before the deadline will be penalized with an excise tax equal to 25% of the amount not withdrawn. The penalty can be reduced to 10% if the error is corrected within two years, or else it can be waived entirely if the account holder can show the shortfall was due to a reasonable error. To qualify, you must file a Form 5329 (and a letter of explanation) with your tax return.
How to calculate the required minimum distribution (RMD) on a $750,000 retirement account
Required minimum distribution amounts are calculated by dividing a life expectancy factor into the relevant account balance from Dec. 31 of the previous year. For instance, to calculate RMD amounts due by Dec. 31, 2025, you will use the account balance from Dec. 31, 2024.
Importantly, individuals with more than one IRA must calculate the RMD for each account separately, but the total amount can be withdrawn from a single account. However, that rule does not apply to defined contribution plans like 401(k), 403(b), and profit-sharing. The RMDs for those accounts must be calculated and withdrawn separately.
The IRS publishes three life expectancy tables. The table used to determine your RMD depends on personal circumstances. Beneficiaries use Table I (Single Life Expectancy). Account holders whose spouses are their only beneficiary and at least 10 years younger use Table II (Joint and Last Survivor Life Expectancy). All other account holders use Table III (Uniform Lifetime).
Shown here is an abbreviated reproduction of Table III (Uniform Lifetime) from the IRS.
|
Age in Current Year |
Distribution Period |
|---|---|
|
73 |
26.5 |
|
74 |
25.5 |
|
75 |
24.6 |
|
76 |
23.7 |
|
77 |
22.9 |
|
78 |
22.0 |
|
79 |
21.1 |
|
80 |
20.2 |
Data source: Internal Revenue Service. Uniform Lifetime Table.
Here is an example: John turned 73 in 2025, so he is now subject to RMD rules. John had $750,000 invested in a traditional 401(k) plan as of Dec. 31, 2024. His RMD amount is calculated as $750,000 divided by 26.5, which equals $28,302. As a reminder, because this will be John's first RMD, he can delay until April 1, 2026. But his second RMD must still be completed by Dec. 31, 2026.
Here is another example: Emily turns 75 in 2025. She had $500,000 in a traditional IRA and $250,000 in a traditional 401(k) as of Dec. 31, 2024. The RMD on her IRA is calculated as $500,000 divided by 24.6, which equals $20,325. The RMD on her 401(k) is calculated separately as $250,000 divided by 24.6, which equals $10,163.
Here is a final example: Daniel turns 75 in 2025. He had $500,000 in one traditional IRA and $250,000 in another traditional IRA as of Dec. 31, 2024. The RMD amounts will be the same as in the previous example, but Daniel is allowed to combine the sums and withdraw the total (i.e., $30,488) from a single account.
