Required Minimum Distribution
A required minimum distribution (RMD) is the amount of money you must withdraw from your retirement account to avoid tax penalties. A specific calculation is used to determine your RMD each year. RMDs begin when you reach age 72 (or 70 1/2 if you reach 70 1/2 before January 1, 2020).
What Is a Required Minimum Distribution (RMD)?
You can’t keep money in a tax-deferred retirement account forever.
The IRS has specific rules against it, and you can face penalties for breaking or ignoring those rules.
A required minimum distribution (RMD) is the minimum amount of money you must withdraw from your retirement account each year. RMDs are an important part of retirement planning and can influence your overall retirement investing strategy as you get older.
RMDs generally begin the year you turn 72. Withdrawals must take place before December 31 each year.
For those who turned 70 1/2 before January 1, 2020, RMDs began at age 70 1/2.
Roth IRAs do not have RMDs until after the owner’s death.
How to Calculate RMD
To calculate your RMD for this year, divide your account balance at the end of last year by the IRS life-expectancy factor that corresponds to your age.
There are two different IRS life expectancy tables you can use, depending on your situation.
- Joint Life and Last Survivor Table
- Use this table if you’re married and your spouse is more than 10 years younger than you.
- Uniform Lifetime Table
- Use this table if you’re single or married to someone who isn’t more than 10 years younger than you.
Most people use the Uniform Lifetime Table.
You’ll use the same formula to calculate RMDs if your spouse is the sole beneficiary of your account and is more than 10 years younger than you. However, the life expectancy factors are different.
Life expectancy factors for both Uniform Lifetime and Joint Life tables are listed below in the next section.
2021 RMD Tables
RMD Rules & Requirements
Required minimum distribution rules are complicated. But failing to follow IRS requirements can result in major penalties.
Until recently, most people were required to start taking RMDs around age 70 1/2.
That changed with the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), which enacted major changes to RMD rules.
If you turned 70 1/2 in 2019, then you should have taken your first RMD by April 1, 2020.
For everyone else, the IRS now lets you defer your first RMD to as late as April 1 following the calendar year you turn 72.
However, if you delay your first RMD, you must take two distributions in a single year. For example, if you turn 72 in March 2021, you have until April 1, 2022, to take your first RMD. But you’ll have to take another RMD by December 31, 2022.
RMD Rules for Multiple Accounts
If you have more than one retirement account that is subject to RMDs, you’ll need to calculate the distribution for each account separately.
There’s an exception for IRAs. In this case, the IRS allows you to take your total IRA RMD from just one IRA account.
The same rule applies if you have more than one 403(b) plan.
But if you own more than one 401(k) or 457(b) plan, you must pull an RMD from each account separately.
Tips for Minimizing Taxes & Penalties on Your RMDs
If you miss an RMD deadline or don’t take enough out, there are costly consequences.
You’ll owe 50 percent of the amount not distributed when you file your taxes.
For example, if you were supposed to withdraw $10,000 but only took out $6,000, you’d owe a $2,000 penalty (half of the $4,000 difference) plus income tax on the shortfall.
If you missed taking that RMD completely, you would owe $5,000 at tax time.
Because of this risk, financial experts often suggest withdrawing a little more than just the minimum. Think of RMDs as a floor, not a ceiling. You can always take out more than the RMD, but not less.
If you get pinged with the 50 percent IRS penalty, you can ask the IRS to waive it.
- Correct the Mistake
- Find out your actual RMD and remove the proper amount from your account. If you only withdrew $4,000 initially but your RMD is $10,000, take out another $6,000.
- Submit IRS Form 5329
- File IRS Tax Form 5329, "Additional Taxes on Qualified Plans (Including IRAs) And Other Tax Favored Accounts." You can file this form with your tax return or by itself. If you’re requesting a penalty waiver, you don’t need to submit a payment with the form.
- Explain the Mistake
- Include a letter with Form 5329 explaining what happened and what you did to correct it.
- Wait for a Response
- Filing Form 5329 doesn’t guarantee the fee will be waived, but the IRS is known to be relatively lenient in these situations. If the fee is waived, you should receive confirmation from the IRS a few months after submitting the form.
Even if you correctly follow IRS rules, RMDs can come with tax consequences.
For example, the IRS gives you the option to delay your first RMD until April 1 following the year you turn 72. But if you do so, you’re required to take another RMD by Dec. 1 — less than nine months later.
If your RMDs are large, this could bump you into a higher tax bracket the following year.
You could owe more in federal taxes, and your RMDs could be taxed at a higher ordinary income rate.
If your income is high enough, more of your Social Security income could be subject to taxes. You may also end up paying higher premiums for Medicare Part B and Part D, due to the income-related monthly adjustment amount.
If you’re worried about this scenario, don’t delay your first RMD until April 1 the year after you turn 72. Instead, spread the withdrawals over both years by making your first payment before December 31 of the year you turn 72.
Frequently Asked Questions About RMDs
If you’re still working past age 72 and don’t own 5 percent or more of the company, you can avoid taking RMDs from your current employer’s 401(k) plan until you retire. Check with your employer to see if you’re eligible for this deferral.
You still need to take RMDs from any old 401(k) plans unless you roll them over into your current plan. You must also take RMDs from any traditional IRAs if you have them.
4 Cited Research Articles
- Internal Revenue Service. (2021, May 25). Publication 590-B (2020), Distributions from Individual Retirement Arrangements (IRAs). Retrieved from https://www.irs.gov/publications/p590b#en_US_2020_publink1000230777
- Internal Revenue Service. (2021, May 3). Retirement Topics — Required Minimum Distributions (RMDs). Retrieved from https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
- Stewart, J. and Sheedy, R. L. (2021, March 4). The Basics of Required Minimum Distributions: 12 Things You Must Know About RMDs. Retrieved from https://www.kiplinger.com/retirement/retirement-plans/required-minimum-distributions-rmds
- Internal Revenue Service. (n.d.). IRA Required Minimum Distribution Worksheet. Retrieved from https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf