# Required Minimum Distributions: How To Calculate, Rules

Once you turn 73, the IRS expects you to take annual Required Minimum Distributions (RMDs) from your retirement accounts.

But how do you calculate your RMDs? And when is the deadline to withdraw the funds?

In this article, I’ll explain how RMDs work, the deadlines you need to meet to avoid stiff tax penalties and what happens if you inherit a retirement account.

## What Are Required Minimum Distributions (RMDs)?

A Required Minimum Distribution (RMD) is the amount of money the IRS requires you to withdraw from a tax-advantaged retirement plan every year after your 73rd birthday.

Why the requirement? Simple: Uncle Sam wants his tax money. The IRS uses life expectancy tables to determine how much you must withdraw each year. The amount is a percentage of your retirement account balance. It increases the older you get.

As with most things related to taxes, there are numerous exceptions to and variations of this rule depending on your account type and circumstances. But, for the most part, once you turn 73, you’ll need to start factoring RMDs into your tax strategy. There are also huge penalties if you fail to withdraw the required amount in any given year.

Wondering why the age is 73 and not 72? The United States signed into law the SECURE Act 2.0. The law introduced major tweaks to the rules governing retirement accounts, including pushing back the RMD age.

The RMD age will move to 75 years old starting in 2033, according to the legislation.

## How Do I Calculate My Required Distribution?

In many cases, your retirement account administrator will calculate your RMD for you. However, the IRS makes it clear that you’re “ultimately responsible” for calculating the amount of your RMD.

Figuring out how much money you need to withdraw isn’t as complex as you might imagine. The IRS bases the figures on life expectancy.

The basic calculation:

1. Find your retirement account balance as of Dec. 31 of the previous year.
2. Use the appropriate IRS worksheet to figure out your distribution period. It’s a basic table provided in the appendix of Publication 590-B. Your age corresponds to a distribution period number.
3. Divide the number from Step 1 by the number from Step 2. This is your RMD: the amount of money you need to take out by the deadline.

### RMD Rules: Example Calculation

Here’s a hypothetical example. Susan is 76 years old. She had \$300,000 in her 401(k) as of Dec. 31, 2022. Her distribution period from the IRS Table is considered Step 2, which is 22.0. So, \$300,000 divided by 22 is \$13,636.36. That’s the amount that Susan must have withdrawn from her 401(k) by Dec. 31, 2023.

If Susan is withdrawing from a traditional 401(k) account, she’d add that \$13,636.36 to any other income that she received in 2023 as part of her income tax bill due in April 2024.

You can find the RMD tables within the IRS Publication 590. Keep in mind that if your spouse is your only primary beneficiary, and he or she is more than 10 years younger than you, you’ll need to use the IRS Joint Life and Last Survivor Expectancy Table, also found within IRS Publication 590.

## What Are the Deadlines To Take My RMDs?

You have until April 1 the year after your 73nd birthday to complete your first RMD. So if your 73rd birthday was Jan. 1, 2023, you still have until April 1, 2024, to complete your first withdrawal.

However, starting the year you turn 74, you’ll need to complete your RMD each year by Dec. 31.

Keep in mind that if the money you initially contributed to your retirement account was tax-deferred, as is the case with a traditional 401(k) or IRA, you’ll have to pay income taxes on any money you withdraw.

If you wait until the year after your 73rd birthday to take your first Required Minimum Distribution, you’ll need to take an additional RMD within the same calendar year. That will impact your income tax bill.

## What Is the Penalty for Failing To Take RMDs?

If you miss the IRS deadline to complete your annual RMD, or if you withdraw only a partial amount, the IRS will hammer you with a 25% penalty.

It’s only a soft 25% penalty, though. If you fix your error by the end of the second year after your mistake, the IRS will lower that penalty to 10% — and may consider waiving it entirely.

That’s a big change. As recently as 2022, the penalty was 50% — one of the largest penalties in the entire U.S. tax code. And, there was no penalty reduction if you rectified your mistake.

So how does this penalty work?

Let’s go back to Susan and our hypothetical example. She needed to withdraw \$13,636.36 in 2023. But what if she took out only \$3,636.36? She would be \$10,000 short of her RMD. The IRS would slam her with a \$2,500 tax penalty: 25% of the amount she failed to withdraw in time.

Susan failed to take her full RMD in 2023. But she’ll owe just 10% in penalties as long as she resolves the issue by Dec. 31, 2025.

If you make an error, you may be able to avoid paying any penalty. The IRS has the authority to waive it, especially if there are strong extenuating circumstances such as an illness or a death in the family.

To fix things, you should withdraw the appropriate amount from your retirement account as soon as possible. Then file “Additional Taxes on Qualified Plans (Including IRAs) And Other Tax Favored Accounts,” which is tax form 5329, along with a letter explaining why you made the mistake and what you’ve done to correct it.

## How To Avoid Taking RMDs

If you’re the original owner of a Roth IRA account, you don’t have to take any distributions within your lifetime. It makes sense: With a Roth IRA, you’re contributing post-tax dollars. So the IRS already has taken its cut.

However, the IRS just extended this rule to apply to Roth 401(k) accounts as well.

Money expert Clark Howard thinks a Roth IRA is your best investment account option if you don’t have access to a 401(k).

Before the SECURE Act 2.0 passed in 2022, if you were still working past your 72nd birthday, you may have been able to avoid taking RMDs from your 401(k) at your current company. But those stipulations no longer matter now that you can hold funds in a Roth 401(k) account until your death without ever having to take a Required Minimum Distribution.

## What Are the Rules if You Inherit an IRA or 401(k)?

If you inherit an IRA or 401(k), the tax rules can get really complicated really fast. It’s a good idea to consult with a tax professional or a financial advisor to figure out your specific situation.

In many cases, you’ll need to withdraw the full amount within 10 years. But you’ll have some flexibility as to how much to withdraw each year, so you can do this strategically based on your income.

If you’re a surviving spouse, a minor (under 18 in most states), disabled or less than 10 years younger than the deceased, you probably qualify for an exception to the usual 10-year deadline.

There’s also a five-year deadline for the person who inherits the account to withdraw the full amount if the previous IRA owner dies before age 73 and didn’t designate a beneficiary. That’s just one of many rules that apply to specific scenarios.

### What Happens if You Have More Than One Retirement Account?

The RMD rules apply to all your retirement accounts. So you’ll need to repeat the RMD calculation I explained earlier in this article for each of your accounts.

However, the RMD amounts are not siloed. In other words, if your RMD is \$10,000 from one account and \$5,000 from another, you can take out all \$15,000 from just one of the accounts as long as you meet the overall requirement. You could also take out \$7,500 from each account — or any other amount that adds up to \$15,000 total.

### Can You Withdraw More Than the Minimum Required?

Yes. You aren’t limited by your RMD for that year. It’s simply the minimum amount you must withdraw to avoid IRS tax penalties.

However, withdrawing more than the minimum amount may increase your income tax bill.

### Can You Avoid Taxes By Donating Your RMDs To a Charity?

Typically, the IRS wants you to start withdrawing money from your retirement account (or a retirement account you inherited) at some point. That way they can get a taste of the proceeds.

However, if you have saved more, spent less and have excess funds to give to charity, you don’t have to declare the extra income to the IRS. This process is called a qualified charitable distribution.

The IRS defines a qualified charitable distribution (QCD) as follows:

“Generally, a qualified charitable distribution is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity.”

## Final Thoughts

Tax-advantaged retirement accounts are great tools to accumulate money for your post-work life. But you’re required to start withdrawing and paying income tax on a portion of those funds once you reach 73 years of age.

You may owe steep tax penalties if you don’t follow the IRS rules for RMDs. Even if you do follow the rules, withdrawing from a retirement account can generate taxable income. So it’s a good idea to discuss your strategy with a tax specialist or financial advisor.