Required minimum distributions (RMDs) are the minimum amount you must withdraw from certain tax-advantaged retirement accounts. They begin at age 72 or 73, depending on your circumstances, and continue indefinitely. Unfortunately, there is no age at which RMDs stop. You must continue to take them for the life of the account. It may be a good idea to work with a professional financial advisor to help you create a retirement payout strategy that works for you.
What are the minimum distributions required?
A required minimum distribution is the minimum amount you must withdraw each year from certain tax-advantaged retirement accounts. This law mostly applies to pre-tax accounts like 401(k) and IRA plans. You don’t have to make minimum withdrawals from Roth IRAs, although in an exception to this rule, you must take minimum distributions from Roth 401(k)s.
The IRS requires minimum distributions as a way to make sure you pay taxes eventually. Pre-tax accounts represent a basket of money on which you have never paid either income or capital gains tax. For some retirees, especially the wealthier ones, without an RMD, they could sit on that money indefinitely and eventually give it to their heirs tax-free. (For more information on how this would work, see our step-up loophole articles.)
This is why the IRS does not require minimum distributions from Roth IRAs. Since a Roth IRA is an after-tax retirement account, you’ve already paid income taxes on the money, and the IRS doesn’t have to make sure you make withdrawals.
How much are required minimum distributions?
The specific amount you need to withdraw varies based on both your age and the value of your retirement account. The IRS states this in Publication 590. In it you can look up your current age and find a life expectancy factor based on that age. You divide the value of your retirement account by the life expectancy factor to find out how much you need to withdraw.
Required minimum distributions are annual, meaning you can structure these payouts as you see fit throughout the year, but must have met the minimum amount by December 31st. If you don’t, the IRS will charge you a tax penalty. This penalty is typically set at 50% of the difference between what you withdrew and what you should have withdrawn.
For example, say you have a life expectancy factor of 10 and $60,000 in your retirement account. You must withdraw at least $6,000 by the end of the year. If you instead withdraw only $5,000, the IRS will charge a fee of $2,500.
It is important for investors to note that they do not need to keep this money in cash. You can reinvest this money in a private investment portfolio if you don’t need to use it.
When do minimum required distributions begin?
The start date for required minimum distributions has been rolled back a few times over the years, most recently with the SECURE 2.0 Act. If you turned 72 during or before the year 2022, you must begin taking required minimum distributions from qualified retirement accounts on the later of either:
1 April of the year following your 72nd birthday
For workplace schemes, 1 April of the year after you retire
Starting January 1, 2023, the RMD age will increase to 73. This means that if you turn 72 in 2023 or later, you must begin taking required minimum distributions from qualified retirement accounts on the later of either:
1 April the year after you turn 73
Or, for workplace plans, April 1 of the year after you retire
This cut-off age will increase over the next 10 years, reaching 75 in 2033.
For example, say Elizabeth is currently retired and will turn 73 in October 2023. She must begin taking minimum distributions from her qualified retirement accounts on April 1, 2024. On the other hand, say she is still working. In that case, the same rule will apply to her IRA, but she can delay making withdrawals from her 401(k) until the year after she retires.
When do required minimum distributions stop?
Required minimum distributions do not stop. There is no maximum age for this rule, nor are payments phased out on any basis other than financial. Your required minimum distributions are based on an account’s underlying assets, meaning that if a retirement account runs out of money, you will no longer have any associated withdrawal requirements.
Also note that each category of retirement account is treated separately for RMD requirements. For example, if you have both a 401(k) and an IRA, you must calculate and make minimum withdrawals from each account. The amount you withdraw from your 401(k) does not apply to the RMD for your IRA. However, if you have multiple IRA accounts, you can withdraw the total amount owed from a single portfolio.
Finally, if you fail to make minimum payments, the IRS will sometimes waive its penalties if you can show that the shortfall was due to “reasonable error” and that you correct it. However, you cannot use excess withdrawals from a previous year to meet your RMD requirements for a future year.
There is no maximum age for required minimum distributions. For any retirement account that qualifies, you must continue to take these withdrawals indefinitely. This is an important piece of the puzzle that must be included in any retirement withdrawal strategy so that you can be prepared for your entire life.
Tips for retirement planning
A financial advisor can help you manage your wealth or build for retirement, but they can also help create a plan for payouts when you get there. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If the IRS specifies your minimum distributions, it is important to plan the kinds of distributions you will take from your portfolio.
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