What a Required Minimum Distribution Is and Why You Calculate It

A Required Minimum Distribution (RMD) is the amount of money the IRS requires you to withdraw from certain retirement accounts each year, starting at age 73 (as of 2023, under current law). The IRS sets this amount based on your account balance and your life expectancy. If you do not take out the full RMD, you owe a penalty on the amount you failed to withdraw — currently 25 percent of the shortfall, though this can drop to 10 percent if you correct it within two years.

You calculate your RMD separately for each retirement account you own — a traditional IRA, a SEP-IRA, a straightforward IRA, a 401(k), a 403(b), or a 457(b). You can combine IRAs and withdraw the total from one account if you wish, but 401(k)s, 403(b)s, and 457(b)s must be calculated and withdrawn separately. Roth IRAs do not require distributions while the original owner is alive.

Key Takeaways

  • Your RMD is calculated by dividing your account balance on December 31 of the prior year by a life expectancy factor published by the IRS in tables based on your age.
  • You must use the account balance from December 31 of the year before the year you are taking the distribution, not the current year balance.
  • The IRS publishes three life expectancy tables — Uniform Lifetime, Beneficiary, and Single Life — and which one you use depends on who your beneficiary is and your marital status.
  • If you are still working and do not own more than 5 percent of the company sponsoring your 401(k), you may be able to delay your first RMD until you retire.
  • If you miss a distribution or take out too little, you can correct it within two years and pay a reduced penalty instead of the full 25 percent.

The Basic RMD Formula: Account Balance Divided by Life Expectancy Factor

The formula is straightforward: take your account balance on December 31 of the prior year and divide it by the life expectancy factor that matches your age and situation. The result is your RMD for that year.

For example, if you are 75 years old and your IRA balance was $400,000 on December 31 of last year, you would find the life expectancy factor for age 75 in the Uniform Lifetime Table (which is 24.6 for most people). Divide $400,000 by 24.6 to get $16,260.16. That is your RMD for the year.

The life expectancy factor is not your actual life expectancy — it is a number the IRS publishes that assumes you will live to a certain age. The factor decreases each year as you age, which means your RMD increases even if your account balance stays the same.

Which IRS Table to Use: Uniform Lifetime, Beneficiary, or Single Life

The IRS publishes three life expectancy tables, and which one you use depends on your situation. Most people use the Uniform Lifetime Table, which applies if your spouse is not your sole beneficiary or if your spouse is your sole beneficiary but is not more than 10 years younger than you.

If your spouse is your sole beneficiary and is more than 10 years younger than you, you use the Joint and Last Survivor Table instead. This table has lower life expectancy factors, which means your RMD will be larger.

The Single Life Table is used only for beneficiaries calculating their own RMDs after the original account owner has died. If you are the original account owner, you do not use this table.

The IRS publishes these tables in Publication 590-B, which you can find on the IRS website. The tables list the life expectancy factor for each age from 72 onward. You find your age in the left column and read across to find the factor.

Using the Correct Account Balance: December 31 of the Prior Year

The account balance you use is the fair market value of your account on December 31 of the year before the year you are taking the distribution. This is called the valuation date. You do not use the current year balance, and you do not use an average of the year.

If you have multiple accounts of the same type — for example, two traditional IRAs — you add up the December 31 balances of both accounts and use the combined total to calculate one RMD. You can then withdraw that RMD from either account or split it between them. This rule applies only to IRAs; 401(k)s, 403(b)s, and 457(b)s must be calculated separately.

If your account value fluctuates during the year, use the December 31 statement from the prior year. If you cannot find that statement, contact your financial institution and ask for the December 31 valuation. Most institutions provide this automatically, but if yours does not, request it in writing.

Your First RMD: The Year You Turn 73 and the April 1 important date

Your first RMD is due in the year you turn 73. You have until April 1 of the following year to take it. For example, if you turn 73 in 2024, your first RMD is due by April 1, 2025. After that, all RMDs are due by December 31 of each year.

If you delay your first RMD until April 1, you will owe two RMDs in that second year — one for the first year (taken by April 1) and one for the second year (due by December 31). This can push you into a higher tax bracket, so many people take their first RMD by December 31 of the year they turn 73 instead of waiting until April 1.

If you are still working and do not own more than 5 percent of the company sponsoring your 401(k), 403(b), or 457(b), you may be able to delay your first RMD until you actually retire. This rule does not explore to IRAs. Check with your plan administrator to see if your plan allows this exception.

Step-by-Step Example: Calculating an RMD from Start to Finish

Here is a complete example. You are 76 years old. Your traditional IRA balance on December 31 of last year was $250,000. Your spouse is not your sole beneficiary, so you use the Uniform Lifetime Table.

Step 1: Find your age in the Uniform Lifetime Table. At age 76, the life expectancy factor is 23.7.

Step 2: Divide your account balance by the factor. $250,000 ÷ 23.7 = $10,548.95.

Step 3: Your RMD for the year is $10,548.95. You must withdraw at least this amount by December 31.

If you have a second IRA with a balance of $100,000 on December 31, you add the two balances together: $250,000 + $100,000 = $350,000. Then divide by 23.7: $350,000 ÷ 23.7 = $14,767.90. You can withdraw this amount from either IRA or split it between them.

What Happens If You Miss Your RMD or Take Out Too Little

If you do not take your full RMD by the important date, the IRS charges a penalty equal to 25 percent of the amount you failed to withdraw. As of 2024, this is the standard penalty. If you correct the shortfall within two years, the penalty drops to 10 percent.

For example, if your RMD was $10,000 and you took out only $6,000, you failed to withdraw $4,000. The penalty would be $1,000 (25 percent of $4,000). If you withdraw the missing $4,000 within two years and file an amended return, the penalty becomes $400 (10 percent of $4,000).

You report the penalty on your tax return. If the IRS assesses the penalty and you believe you have a reasonable cause for missing the important date, you can request a waiver. Reasonable cause might include a serious illness, a death in the family, or a mistake by your financial institution. Contact the IRS directly to request a waiver.

Frequently Asked Questions

Can I take my RMD all at once or do I have to spread it throughout the year?

You can take your entire RMD in one withdrawal or spread it across multiple withdrawals throughout the year. The only requirement is that the total amount withdrawn by December 31 meets or exceeds your calculated RMD. Many people take their RMD in December to keep the money invested as long as possible.

What if my account value dropped significantly during the year?

Your RMD is based on the December 31 balance from the prior year, not the current year balance. If your account dropped in value this year, your RMD does not change. You still owe the full amount calculated from last year's balance. However, next year's RMD will be lower because it will be based on this year's lower December 31 balance.

Do I have to take my RMD from the same account where the money is invested?

For IRAs, you can withdraw your RMD from any of your IRAs, even if the money is invested in a different one. For 401(k)s, 403(b)s, and 457(b)s, you must take the RMD from that specific plan. You cannot combine them or withdraw from a different plan to satisfy the requirement.

What if I have a Roth IRA?

Roth IRAs do not require distributions while you are alive. Your beneficiaries will have to take distributions after you die, but you do not. This is one major advantage of a Roth IRA if you do not need the money.

How do I know if my financial institution calculated my RMD correctly?

Your financial institution is required to calculate and report your RMD to you by January 31 of the year the distribution is due. Check the calculation against the IRS tables yourself using the method described above. If the numbers do not match, contact your institution and ask them to recalculate. You are responsible for taking the correct amount, even if your institution makes an error.