Frequently Asked Questions About Required Minimum Distributions

If you've started planning for retirement, perhaps you've come across the term required minimum distributions, or RMDs. And if you're approaching retirement age, you may have questions about your options for taking these distributions from your accounts.

It helps to get a better understanding of how RMDs work—including how they're calculated, when you can take them and whether there are early withdrawal penalties—to help you prepare for them when the time comes. Note that the following information has been updated since the SECURE 2.0 act passed in 2022 and doesn't apply to inherited IRAs, which have additional rules around RMDs.

What's an RMD?

An RMD is the amount set by the federal government that you're required to withdraw from certain types of retirement accounts each year. When you reach age 73—or, in some cases, right after you retire—you must withdraw the RMD from each of your retirement accounts, which are subject to RMD rules.

Prior to the SECURE 2.0 Act being passed, individuals were required to take RMDs starting at age 72. If you turn 72 in 2023, you would now take your first RMD in 2024.

What did SECURE 2.0 change about RMDs?

The SECURE 2.0 Act changed two significant portions of required minimum distributions—the age at which they start and the penalty for missing the RMD deadline each year.

Effective January 1, 2023, the RMD age increased from 72 to 73. Also, effective January 1, 2023, the excise tax on an RMD withdrawal that's taken late or has been missed has decreased from 50% to 25%.

Which types of retirement accounts are subject to RMD rules?

Over the course of your career, you might accumulate several types of retirement accounts. Knowing which ones are subject to RMD rules can help you avoid a potential penalty. The following account types, among others, are subject to RMD rules:

• Traditional IRAs
• Simplified Employee Pension, or SEP, IRAs
• SIMPLE IRAs

Several types of retirement plans offered through your employer also qualify, including:

• 401(k) plans
• Roth 401(k) plans
• Employee stock ownership plans
• Profit-sharing plans
• Money-purchase plans
• Defined-benefit plans
• Section 457(b) and Section 403(b) plans

If you're unsure if your retirement account requires you to take an RMD, contact your plan administrator or tax professional.

When's the cutoff for taking RMDs each year?

The year you reach age 73 is when the clock starts on withdrawing your RMD. There's some flexibility around this rule, though. You can either take your first RMD the year you turn 73 or delay it until April 1 of the following year. If you choose to delay taking your first RMD, you must take your first and second RMD in the same year.

However, there's an exception to this rule. If you continue to work past age 73, still participate in your employer's retirement plan that allows this exception and own 5% or less of the company, an RMD is not required. Once you retire, you must withdraw your first RMD the year in which you retire, although the ability to postpone to April 1 of the following year is still available to you.

Can I take more than my RMD amount?

Your calculated RMD is the minimum amount that must be taken from your IRA or retirement plan, but you can always take more. To be on the safe side, discuss any potential tax implications with a tax professional.

Is there a penalty if I don't take the required RMD?

There's no penalty to withdraw from your retirement funds if you take out more than the RMD and have met all other account-specific eligibility requirements.

However, if you fail to withdraw at least the RMD each year or withdraw too late, you'll be subject to a 25% excise tax on the difference between the RMD and the amount you actually withdrew. For example, if you calculate the RMD for your traditional IRA for one year to be $7,000 but you only withdraw $2,000, you'd be taxed 25% on the $5,000 you didn't withdraw. This comes to a total of $1,250 taxed for that one account, subject to RMD requirements.

It's important to note the 25% excise tax is a reduced penalty under the SECURE 2.0 Act. The penalty amount may decrease to 10% if the RMD is taken soon after the December 31 deadline and adheres to certain regulatory factors including but not limited to the date the excise tax was assessed.

How will I know what my RMD amount is?

As required by the IRS, organizations that hold your IRA or plan administrators of your retirement accounts are required to provide your RMD amount only on the accounts they hold. This notice is required to be postmarked no later than January 31 each year. Be aware that the RMD amount may be included in your year-end statement or even your January month-end statement. Organizations also have the choice to provide your RMD information in a letter or offer to prepare the RMD calculation upon your request.

Although you can aggregate your RMD across your traditional IRAs and take the total RMD from only one traditional IRA, retirement plan RMDs can only come from that plan alone—no aggregation is allowed.

As a reminder, Roth IRAs don't have an RMD and inherited IRAs follow different rules.

Online calculators are also great tools to verify RMDs.

What life expectancy table should I use to calculate my RMD?

For most retirement account owners, the Uniform Lifetime Table will be used to determine your life expectancy factor. However, if your spouse is your sole designated beneficiary and they're more than 10 years younger than you, your RMD calculation may be based on you and your spouse's joint and survivor life expectancy. You can find these tables and factors in IRS Publication 590-B. In this scenario, you can take your RMDs over a longer payout period than under the Uniform Lifetime Table.

Should I delay my first RMD?

Some people delay their first distribution because they expect to be in a lower tax bracket due to no longer receiving a paycheck. If you're considering delaying your first RMD, keep in mind that you'll need to take two RMDs that calendar year—the one prior to April 1 and a second one before December 31. This double-RMD year could result in you paying more federal or state income taxes. You could even be pushed into a higher tax bracket for that year.

There are other factors to consider as well, so talk with your plan sponsor or a tax professional to understand which timeline—on time or delayed—may be best for you.

The bottom line

While RMDs may seem complex for most individuals, the calculation of the RMD in the first year and all subsequent years is relatively straightforward. And you can always withdraw more than the RMD each year if needed.

If you have questions about your RMD requirements, speak to your plan sponsor or tax professional.