Required minimum distribution (RMD)
The minimum amount you must withdraw each year from traditional retirement accounts once you reach RMD age.
RMD = Prior Dec 31 balance ÷ Uniform Lifetime Table factor for your age
Explanation
The government lets traditional retirement money grow tax-deferred, but not forever. Under SECURE 2.0, RMDs begin at:
- Age 73 if you were born 1951 through 1959
- Age 75 if you were born in 1960 or later
Each year’s RMD equals the account balance on December 31 of the prior year divided by a life-expectancy factor. Most people use the IRS Uniform Lifetime Table (for example, 26.5 at age 73, 24.6 at 75, 22.9 at 77 and 16.0 at 85). If your sole beneficiary is a spouse more than 10 years younger, you use the Joint and Last Survivor Table instead, which gives smaller RMDs. The factor shrinks each year, so the required percentage grows.
Key rules:
- Your first RMD can be delayed until April 1 of the year after you reach RMD age, but then you take two in that year.
- IRA RMDs can be totaled and taken from any of your IRAs; 401(k) RMDs must come from each plan.
- If you are still working and not a 5% owner, you can usually delay RMDs from your current employer’s plan.
- Roth IRAs have no RMDs for the original owner; Roth 401(k)s no longer do either.
- Missing an RMD triggers a 25% excise tax on the shortfall, reduced to 10% if corrected promptly (generally within two years).
- Inherited accounts follow different rules, often a 10-year payout.
In scenarios, the app calculates RMDs each year from your projected traditional balances and adds them to taxable income, whether or not you need the cash.
Example
You were born in 1953 and turn 73 this year. Your traditional IRA was worth $500,000 on December 31 of last year.
- Uniform Lifetime factor at 73: 26.5
- RMD: $500,000 ÷ 26.5 = $18,867.92 (about 3.8% of the balance)
Someone born in 1961 does not start until 75. With the same $500,000 balance at that point, the RMD would be $500,000 ÷ 24.6 = $20,325.20 (about 4.1%).