Required minimum distributions (RMDs) are mandatory withdrawals from certain retirement accounts, including 401(k)s, that begin at age 73. The IRS sets the age at which RMDs must start to prevent individuals from deferring taxes indefinitely. Failure to take RMDs can result in a 50% penalty on the amount that should have been withdrawn. The RMD rules apply to traditional 401(k)s and other tax-deferred retirement plans. Roth 401(k)s, which are funded with after-tax dollars, are not subject to RMDs during the owner’s lifetime.
Required Minimum Distributions (RMDs) Explained
Required Minimum Distributions (RMDs) are the minimum amounts you must withdraw from your traditional IRAs and 401(k)s once you reach a certain age. RMDs are designed to ensure that you are drawing down your retirement savings and paying taxes on them over time. The age at which you must start taking RMDs is 72, except for those born before July 1, 1949, who must start at age 70½.
Age at Which RMDs Start
* For those born before July 1, 1949: Age 70½
* For those born on or after July 1, 1949: Age 72
Penalties for Not Taking RMDs
* 50% penalty on the amount not taken
* Penalty tax is due by April 15 of the following year
Calculating Your RMD
* Your RMD is based on the balance of your retirement account as of December 31 of the previous year.
* The IRS provides a table to help you calculate your RMD.
| Age | Distribution Percentage |
|---|---|
| 72 | 3.65% |
| 73 | 3.86% |
| 74 | 4.08% |
| 75 | 4.32% |
| 76 | 4.57% |
| 77 | 4.83% |
| 78 | 5.1% |
| 79 | 5.38% |
| 80 | 5.67% |
| 81 | 5.97% |
| 82 | 6.28% |
| 83 | 6.6% |
| 84 | 6.93% |
| 85 | 7.27% |
| 86 | 7.62% |
| 87 | 7.98% |
| 88 | 8.35% |
| 89 | 8.73% |
| 90 | 9.12% |
| 91 | 9.52% |
| 92 | 9.93% |
| 93 | 10.35% |
| 94 | 10.78% |
| 95 | 11.22% |
| 96 | 11.67% |
| 97 | 12.13% |
| 98 | 12.6% |
| 99 | 13.09% |
| 100+ | 13.59% |
Exceptions to RMD Rules
* You can delay taking RMDs until you retire, but you must start taking them by April 1 of the year after you retire.
* If you are still working and have not reached age 59½, you can continue to contribute to your 401(k) and delay taking RMDs.
* If you have inherited a traditional IRA or 401(k), you may have different RMD rules.
Age Thresholds for Triggering RMDs
Required minimum distributions (RMDs) are annual withdrawals that must be taken from 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 you from deferring taxes on your retirement savings indefinitely and to ensure that you eventually take some of the money out and pay taxes on it.
The age at which you must start taking RMDs depends on the type of retirement plan you have and when you were born.
- For traditional IRAs, the RMD age is 73 for those born before July 1, 1949, and 75 for those born after July 1, 1949.
- For 401(k)s and other employer-sponsored retirement plans, the RMD age is 73 for those born before January 1, 1951, and 75 for those born after January 1, 1951.
If you are still working and have not yet reached the RMD age, you can delay taking RMDs from your 401(k) until you retire. However, you must start taking RMDs by April 1 of the year after you retire, even if you are not yet 73 or 75.
| Birth Year | RMD Age for Traditional IRAs | RMD Age for 401(k)s and Other Employer-Sponsored Retirement Plans |
|---|---|---|
| Before July 1, 1949 | 73 | 73 |
| July 1, 1949 – January 1, 1951 | 75 | 73 |
| After January 1, 1951 | 75 | 75 |
When Do RMDs Start?
Required minimum distributions (RMDs) are the minimum amount of money you must withdraw each year from your traditional IRAs and employer-sponsored retirement plans, such as 401(k)s and 403(b)s, once you reach age 72 (73 if you turn 72 after December 31, 2022). RMDs are designed to ensure that you’re taking money out of your retirement accounts and paying taxes on it while you’re still living.
The age at which you must start taking RMDs is determined by the year you were born and the type of retirement account you have. For traditional IRAs and most employer-sponsored retirement plans, the RMD age is 72 (73 if you turn 72 after December 31, 2022). However, there are some exceptions to this rule.
- If you are still working and not yet age 55, you may delay taking RMDs from your employer-sponsored retirement plan until the year you retire.
- If you are still working and age 55 or older, you may delay taking RMDs from your employer-sponsored retirement plan until the year you turn 59½.
Penalty Implications for Delayed Distributions
If you fail to take your RMDs by the deadline, you will be subject to a 50% penalty on the amount that you should have withdrawn. This penalty is in addition to any income taxes that you may owe on the distribution.
The IRS can waive the 50% penalty if you can show that you had reasonable cause for not taking your RMDs on time. However, the IRS is unlikely to waive the penalty if you simply forgot to take your RMDs or if you didn’t understand the RMD rules.
How to Avoid the Penalty
The best way to avoid the penalty for delayed RMDs is to take your RMDs on time. You can do this by setting up a recurring withdrawal from your retirement account or by working with a financial advisor who can help you manage your RMDs.
If you are not sure how much your RMD is, you can use the IRS’s RMD Calculator to figure it out. You can find the calculator at IRS.gov.
Table of RMD Ages
| Year of Birth | RMD Age |
|---|---|
| 1949 or earlier | 72 |
| 1950 to 1954 | 72 (increases by 1 year each year until 2031) |
| 1955 to 1959 | 73 (increases by 1 year each year until 2033) |
| 1960 or later | 73 |
When Required Minimum Distributions (RMDs) Begin for 401(k) Accounts
Required Minimum Distributions (RMDs) are annual minimum amounts that individuals must withdraw from their traditional IRAs and 401(k) accounts once they reach a certain age. These distributions are subject to income tax, and failure to take them can result in a penalty of 50% of the amount that should have been distributed.
Age at Which RMDs Begin
The age at which RMDs begin for 401(k) accounts is generally 72. However, there are a few exceptions to this rule.
Exceptions to the RMD Rules
- Inherited accounts: If you inherit a 401(k) account, you may not have to start taking RMDs until you reach the age of 72. However, you must take RMDs from inherited accounts over a period of 10 years.
- Roth 401(k) accounts: Roth 401(k) accounts are not subject to RMDs during the lifetime of the account holder.
- 401(k) accounts that are still active: If you are still working and have not yet reached the age of 72, you do not have to start taking RMDs from your 401(k) account.
Calculating Your RMD
The amount of your RMD is calculated based on a number of factors, including your age, your account balance, and the type of account you have. The following table provides a general overview of how RMDs are calculated:
| Age | RMD as a Percentage of Account Balance |
|---|---|
| 72 | 3.65% |
| 73 | 4.00% |
| 74 | 4.35% |
| 75 | 4.70% |
| 76 | 5.05% |
| 77 | 5.40% |
| 78 | 5.75% |
| 79 | 6.10% |
| 80 | 6.45% |
| 81 | 6.80% |
| 82 | 7.15% |
| 83 | 7.50% |
| 84 | 7.85% |
| 85 | 8.20% |
| 86 | 8.55% |
| 87 | 8.90% |
| 88 | 9.25% |
| 89 | 9.60% |
| 90 | 9.95% |
| 91 | 10.30% |
| 92 | 10.65% |
| 93 | 11.00% |
| 94 | 11.35% |
| 95 or older | 11.70% |
It is important to note that these percentages are for traditional IRAs and 401(k) accounts. Roth IRAs and Roth 401(k) accounts are not subject to RMDs.
Taking Your RMD
There are a few different ways to take your RMD. You can withdraw the money directly from your account, roll it over to another retirement account, or take a qualified charitable distribution (QCD). The following are some of the things you should keep in mind when taking your RMD:
- The deadline for taking your RMD is December 31st. If you fail to take your RMD by the deadline, you will be subject to a penalty of 50% of the amount that should have been distributed.
- You can withdraw your RMD in multiple installments. You do not have to withdraw your entire RMD at once. However, you must take your entire RMD for the year by December 31st.
- You can roll over your RMD to another retirement account. This can be a good option if you want to avoid paying income tax on your RMD.
- You can take a qualified charitable distribution (QCD). This allows you to donate your RMD directly to a charity. QCDs are not subject to income tax.
Penalties for Failing to Take an RMD
If you fail to take your RMD by the deadline, you will be subject to a penalty of 50% of the amount that should have been distributed. This penalty is in addition to any income tax that you may owe on the amount that should have been distributed.
There are a few exceptions to the penalty for failing to take an RMD. These exceptions include:
- You are under the age of 72.
- You have a Roth 401(k) account.
- You are still working and have not yet reached the age of 72.
- You have inherited a 401(k) account.
- You receive a waiver from the IRS.
If you have questions about RMDs, you should consult with a financial advisor or tax professional.
And that’s all you need to know about when RMDs start for 401ks! Thanks for sticking with me through all the details. Now, go forth and enjoy your retirement savings without worrying about missing out on those pesky penalties. If you have any more questions, feel free to drop by again. Your financial well-being is my top priority, and I’m always here to lend a helping hand. See you next time!