The age you must start taking money out of your 401(k) plan depends on when you were born. If you were born before 1960, you must start taking withdrawals by April 1st of the year after you turn 70½. If you were born in 1960 or later, you must start taking withdrawals by April 1st of the year after you turn 72. You can choose to delay taking withdrawals until you’re 72, but you’ll have to pay a 50% penalty on any withdrawals you take before you reach that age.
Reaching Age 72
Mandatory withdrawals from your 401(k) account begin once you reach age 72. This is known as the Required Minimum Distribution (RMD), and it applies to all traditional 401(k) accounts, including those that are still active and those that have been rolled over to an IRA.
| Age | RMD Deadline |
|---|---|
| 70½ | April 1st of the year after you turn 70½ |
| 71 | December 31st of the year you turn 71 |
| 72 and older | December 31st of each year |
- For 2023: If you turn 72 in 2023, your first RMD is due by April 1, 2024.
- For 2024 and beyond: If you are already 72 or older in 2024, your RMD is due by December 31st of each year.
The RMD is calculated based on your account balance as of December 31st of the previous year. The percentage you must withdraw each year increases as you get older.
Failing to take your RMDs can result in a 50% penalty on the amount that you should have withdrawn. Therefore, it’s important to plan ahead and make sure that you have a strategy in place for taking your RMDs when they are due.
When Do Mandatory 401k Withdrawals Start
The age at which you must start taking mandatory withdrawals from your 401(k) account depends on your situation. Generally, you must start taking withdrawals by April 1 of the year after you reach age 72. However, there are exceptions to this rule. For example, if you are still working and not yet age 75, you may be able to delay taking withdrawals.
- If you were born before July 1, 1949: You must start taking mandatory withdrawals by April 1 of the year after you reach age 70½.
- If you were born on or after July 1, 1949: You must start taking mandatory withdrawals by April 1 of the year after you reach age 72.
10% Penalty for Early Withdrawals
If you take withdrawals from your 401(k) account before you reach age 59½, you may have to pay a 10% penalty on the amount you withdraw. This penalty is in addition to any income taxes you may owe on the withdrawal.
| Age | Minimum Distribution Requirement |
|---|---|
| 72 | 5.35% |
| 73 | 5.75% |
| 74 | 6.15% |
| 75 | 6.55% |
| 76 | 6.95% |
| 77 | 7.35% |
| 78 | 7.75% |
| 79 | 8.15% |
| 80 | 8.55% |
| 81 | 8.95% |
| 82 | 9.35% |
| 83 | 9.75% |
| 84 | 10.15% |
| 85 | 10.55% |
| 86 | 10.95% |
| 87 | 11.35% |
| 88 | 11.75% |
| 89 | 12.15% |
| 90 or older | 12.55% |
Required Minimum Distributions (RMDs)
Required Minimum Distributions (RMDs) are mandatory withdrawals you must take from your traditional IRAs and employer-sponsored retirement plans, such as 401(k)s, once you reach a certain age.
The purpose of RMDs is to prevent people from deferring paying taxes on their retirement savings indefinitely. By requiring you to take withdrawals, the government ensures that you pay taxes on the money you have accumulated in your retirement accounts.
When Do RMDs Start?
The age at which you must start taking RMDs depends on the type of retirement account you have:
- For traditional IRAs, the age is 72.
- For 401(k)s and other employer-sponsored retirement plans, the age is 73 if you retire before April 1, 2023. For those who retire on or after April 1, 2023, the age is 75.
How Are RMDs Calculated?
The amount of your RMD is based on your account balance at the end of the previous year. The IRS provides a formula for calculating your RMD. You can also use the IRS’s RMD worksheet to help you determine the amount you need to withdraw.
Penalties for Not Taking RMDs
If you fail to take your RMDs, you will be subject to a penalty of 50% of the amount that you should have withdrawn. This is a significant penalty, so it is important to make sure that you take your RMDs on time.
Exceptions to the RMD Rules
There are some exceptions to the RMD rules. For example, you do not have to take RMDs from:
- Roth IRAs
- 401(k)s and other employer-sponsored retirement plans that are still active
Table Summarizing RMD Rules
| Retirement Account Type | RMD Age |
|---|---|
| Traditional IRAs | 72 |
| 401(k)s and other employer-sponsored retirement plans | 73 (retire before April 1, 2023) 75 (retire on or after April 1, 2023) |
## IRA vs. 401(k) Differences
Individual Retirement Accounts (IRAs) and 401(k) plans are both tax-advantaged retirement savings accounts, but they have some key differences:
- Contribution limits: 401(k) plans have higher contribution limits than IRAs. For 2023, the 401(k) contribution limit is $22,500 ($30,000 if you’re age 50 or older), while the IRA contribution limit is $6,500 ($7,500 if you’re age 50 or older).
- Employer contributions: Employers can contribute to employee 401(k) plans, but they cannot contribute to IRAs.
- Vesting: 401(k) contributions made by your employer are typically subject to vesting, which means you must work for your employer for a certain number of years before you have full ownership of the funds. IRAs are always fully vested.
- Withdrawals: You can withdraw funds from an IRA at any time without penalty, but you may have to pay taxes on the withdrawal if you’re under age 59½. 401(k) withdrawals are generally not permitted until you reach age 59½, and you may have to pay taxes and a 10% penalty on the withdrawal if you’re under age 59½.
| IRA | 401(k) |
|---|---|
| Lower contribution limits | Higher contribution limits |
| No employer contributions | Employer contributions may be available |
| Always fully vested | May be subject to vesting |
| Withdrawals permitted at any time | Withdrawals generally not permitted until age 59½ |
That’s all there is to it! Now that you have a better understanding of when mandatory 401k withdrawals start, you can start planning for your retirement accordingly. Remember, planning is key when it comes to securing your financial future. So, take the time to review your 401k account and make sure it’s working for you. Thanks for reading, and be sure to visit us again soon for more financial tips and advice.