8 Popular Questions About Required Minimum Distributions

Estimated reading time: 5 minutes

Required minimum distributions (RMDs) play a crucial role in retirement planning, ensuring you begin withdrawing from your tax-advantaged retirement accounts once you reach a certain age. These withdrawals help fulfill IRS requirements for retirement accounts like traditional IRAs, 401(k)s, and other tax-deferred accounts. 

But how do you know which accounts require RMDs, when to take them, and how much to withdraw?

This article will break down everything you need to know about RMDs, from understanding which types of accounts are subject to RMDs to important deadlines, calculation methods, and potential penalties. Plus, we’ll address some common questions retirees face, including handling multiple accounts, meeting annual requirements, and avoiding unnecessary penalties.

1. Which retirement accounts require RMDs?

The IRS mandates RMDs for several types of tax-deferred retirement accounts. Here’s a breakdown:

• Traditional IRAs: This includes SEP and SIMPLE IRAs. RMDs must begin at the required age, regardless of whether the account holder is still working.
• 401(k) Plans: RMDs apply to most 401(k) accounts, including solo 401(k)s, starting at the required age, even if the account holder is actively employed. Some plans may allow deferrals for active employees.
• 403(b) Plans: These retirement plans, common for employees of public schools and nonprofits, also require RMDs starting at the specified age.
• 457(b) Plans: Generally offered by state and local governments, 457(b) plans mandate RMDs once the account holder reaches the required age.

Notably, Roth IRAs do not require RMDs during the account holder’s lifetime, making them potentially advantageous for those who want tax-free growth and simplified planning.

Previously, Roth 401(k) and Roth 403(b) plans required RMDs. However, under the SECURE Act 2.0, this is no longer the case. Starting in tax year 2024, RMDs are no longer required for these accounts. For instance, if you were scheduled to take an RMD from a Roth 401(k) or Roth 403(b) by December 31, 2024, you no longer need to do so under the updated rule.

2. When do I need to take my first RMD?

You must take your first RMD by April 1 of the year following the year in which you turn 73. This means anyone turning 73 in 2024 must begin their RMDs by April 1, 2025. 

Due to the effects of the SECURE Act 2.0, those born in 1960 or later will have to start taking RMDs at age 75. 

3. What is the deadline for taking subsequent RMDs after the first RMD?

After the first RMD, you must take subsequent RMDs by December 31 of each year beginning with the year containing your required beginning date. 

For example, let’s say you turned 73 on July 15, 2024. You must take your first RMD by April 1, 2025. You must take your second RMD by December 31, 2025, and your third RMD by December 31, 2026.

4. How do I calculate my RMD?

Your RMD is generally determined by dividing the adjusted market value of your IRAs as of December 31 of the preceding year by a life expectancy number that corresponds with your age under the Uniform Lifetime Table. The age used on the table is the age you would attain as of your birthday during the year.

Example 1: Using the Uniform Lifetime Table

If you’re 73 with a total IRA balance of $500,000, find your age’s divisor on the Uniform Lifetime Table (for 73, this divisor is 26.5):

Calculation: $500,000 ÷ 26.5 = $18,867.92

You’ll need to withdraw at least $18,867.92 from your non-Roth IRAs by April 1 of the year after you turn 73 (for your first RMD). Future RMDs must be taken by December 31 each year.

Example 2: Using the Joint Life and Last Survivor Expectancy Table

If your spouse is more than 10 years younger and your sole beneficiary, you can use the Joint Life and Last Survivor Expectancy Table to lower your RMD by using a higher divisor. 

If you’re 73 and your spouse is 60, the divisor for these ages is 28.6:

Calculation: $500,000 ÷ 28.6 = $17,482.52

In this scenario, your minimum withdrawal would be $17,482.52, giving you the option to retain more funds for continued tax-deferred growth.

Additional Notes:

• For 401(k) plans, including solo 401(k) plans, the employer or plan sponsor is responsible for calculating and distributing RMDs. Not doing so can lead to penalties and jeopardize the plan’s qualified status.
• For inherited IRAs, RMD requirements may vary significantly based on factors like your relationship to the original owner, so consult a trusted tax advisor to ensure compliance.

5. How should I take my RMD if I have multiple accounts?

If you have multiple IRAs, you can calculate the RMD for each account but withdraw the total amount from one or more of them. However, if you have multiple 401(k) accounts, each account’s RMD must be calculated and taken separately.

6. May I withdraw more than the RMD?

Yes, an IRA owner can always withdraw more than the RMD. However, you cannot apply excess withdrawals toward future years’ RMDs. 

7. May I take more than one withdrawal in a year to meet my RMD?

Yes, you can take multiple withdrawals throughout the year to satisfy your RMD.

The IRS only requires that you withdraw the full RMD amount for the year by the required distribution deadline. How you choose to take those distributions is up to you. Some retirees prefer to receive their RMDs monthly or quarterly to supplement income, while others may wait until later in the year.

For example, if your annual RMD is $12,000, you could take it in monthly withdrawals of $1,000, quarterly withdrawals of $3,000, or one lump-sum of $12,000. Just ensure that, by the end of the year, the total amount distributed meets or exceeds your RMD requirement.

8. What happens if I do not take an RMD?

If you do not take your RMD by the deadline (December 31, barring your first RMD), you may face a significant tax penalty. 

For missed RMDs in 2023 and beyond, the IRS imposes a penalty of 25% of the amount not withdrawn. However, if you correct the mistake and take the RMD promptly, the penalty may be reduced to 10%.

For instance, if your RMD was $10,000 and you failed to take it on time, the penalty would be $2,500 (25%). However, if you catch the oversight, withdraw the RMD, and submit Form 5329 with your tax return to explain the reasonable error within two years, the IRS may reduce the penalty to $1,000 (10%).

Maintain Your Tax Advantages by Fulfilling Your RMD

As much as we might prefer to keep retirement funds growing tax-deferred, pre-tax contributions can’t remain pre-tax forever. 

RMDs ensure that taxes are eventually collected on funds that have grown in tax-advantaged accounts for years. If you’re nearing RMD age and have one of the accounts listed here, it’s essential to calculate your RMD to stay compliant and avoid penalties.

If your spouse is your sole beneficiary and significantly younger, you may be able to calculate the RMD yourself using the Joint Life and Last Survivor Expectancy Table. If that’s not the case, the calculation is even simpler using either the Uniform Lifetime Table or a free RMD calculator from the SEC. 

Our recent Entrust Client Tutorial Video provides a step-by-step example to guide you through the process.

However, you don’t have to handle this alone. Entrust can calculate the RMD amount for accounts you hold with us; just send us an email at clientservices@theentrustgroup.com or call 1-800-392-9653. If you have multiple retirement accounts with different providers, remember to calculate the RMD for each account to ensure you’re fulfilling your obligations.

For more information, please review IRS Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs).