The end of the year usually brings many deadlines, especially those related to personal finances. One of the deadlines approaching is the required minimum distribution (RMD) that applies to people with tax-deferred retirement accounts like a 401(k) or traditional IRA.
Beginning when you turn 73, RMDs are a way for the IRS to collect taxes on the back end after providing you with an upfront tax break that allowed you to lower your taxable income with contributions to certain retirement accounts.
Unless this is your first year taking RMDs, the deadline to complete you withdrawals is approaching. If this is your first year taking RMDs, you have until April 1, 2026, to withdraw the appropriate amount.
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Determining how much your RMD amount is
To avoid a situation where you don't withdraw the required amount, it's helpful to understand how RMDs are calculated. It comes down to two factors: your age and your retirement account balances at the end of the previous year (for your 2025 RMD, it would be the balances from the end of 2024).
Once you have that information, the next step is to look at your life expectancy factor (LEF), which the IRS provides based on your age and marital status. Most people will use the uniform lifetime table, except for those whose sole beneficiary is a spouse who is more than 10 years younger than them.
To find the exact amount of your RMD, divide your account value by your LEF. For example, if you're using the uniform lifetime table and are 80 years old, your LEF is 20.2. If you finished 2024 with $1 million in your 401(k), your RMD for this year would be $49,505.
What happens if you don't take your RMDs?
Unsurprisingly, failing to take your RMDs results in a penalty. As it stands, the penalty is 25% of the amount you failed to withdraw. If you were supposed to withdraw $49,505 per the example above and only withdrew $39,505, the penalty would be $2,500 ($10,000 * 25%).
If you correct the mistake within two years (i.e., taking the full amount you were supposed to), the penalty can be reduced to 10%. Continuing our example, doing so would result in a $1,000 penalty ($10,000 * 10%) instead of $2,500.
To correct a missed RMD after the deadline, you must submit IRS Form 5329 with your tax return. If an IRS-approved reason (like a natural disaster or error by a financial institution) prevented you from taking your RMD, the penalty may be waived on a case-by-case basis.
