When Do You Have to Start Withdrawing From Your 401k?
When you turn 72, you must start taking withdrawals from your traditional 401k. This is called a required minimum distribution (RMD). The RMD is calculated based on your account balance and your age. If you don’t take the RMD, you may have to pay a 50% penalty on the amount you should have withdrawn. Roth 401ks, on the other hand, have no RMDs. This means you can leave your money in the account and continue to grow it tax-free for as long as you want.
RMD Age Requirements
Retirement account owners must start taking required minimum distributions (RMDs) from their accounts once they reach a certain age. The RMD age requirements for different types of retirement accounts are as follows:
- Traditional IRAs: Age 72
- Roth IRAs: Age 72 (but no RMDs are required during the owner’s lifetime)
- 401(k) and 403(b) plans: Age 73 (if still working) or age 72 (if retired)
The RMD age for retirees who are still working has been increased to 73 for plans that are subject to the SECURE Act of 2019. For plans that are not subject to the SECURE Act, the RMD age for retirees who are still working remains at 70½.
| Account Type | RMD Age |
|---|---|
| Traditional IRA | 72 |
| Roth IRA | 72 (no RMDs during owner’s lifetime) |
| 401(k) and 403(b) plans | 73 (if still working) or 72 (if retired) |
When Do You Have to Start Withdrawing From Your 401k
The age at which you must start taking withdrawals from your 401k depends on several factors, including your age, employment status, and account balance. Generally, you must start taking withdrawals by April 1st of the year after you turn 73. However, there are exceptions to this rule, such as if you are still working and do not own more than 5% of the company you work for.
Penalty for Not Withdrawing
If you do not start taking withdrawals from your 401k by the required age, you may be subject to a 50% penalty on the amount that you should have withdrawn. This penalty is in addition to the regular income tax that you will owe on the withdrawals.
- 50% penalty on the amount that you should have withdrawn
- Additional regular income tax on the withdrawals
To avoid the penalty, you should start taking withdrawals from your 401k before the required age. You can do this by: Taking a lump sum distribution, Rolling your 401k over to an IRA, Taking periodic distributions, Benefiting from the qualified charitable distribution rules.
| Method | Description |
|---|---|
| Lump sum distribution | You can take a lump sum distribution from your 401k at any time after you turn 59½. However, you will owe income tax on the entire amount of the distribution. |
| Rollover to an IRA | You can roll over your 401k to an IRA at any time. This will allow you to avoid paying income tax on the rollover amount. However, you will still need to start taking withdrawals from your IRA by April 1st of the year after you turn 73. |
| Periodic distributions | You can take periodic distributions from your 401k starting at any age. The amount of the distributions will be based on your life expectancy. |
| Qualified charitable distribution rules | You can take qualified charitable distributions (QCDs) from your 401k at any age. QCDs are tax-free up to the amount of your required minimum distribution (RMD). |
When Do You Have to Start Withdrawing From Your 401k?
The age at which you must start taking required minimum distributions (RMDs) from your 401k depends on several factors, including your age and the type of 401k you have. In general, you must start taking RMDs by April 1 of the year after you reach age 72. However, there are some exceptions to this rule.
If you are still working and have not reached age 59½, you can delay taking RMDs until April 1 of the year after you retire.
If you are disabled, you can delay taking RMDs until April 1 of the year after you reach age 59½.
If you own more than 5% of the company that sponsors your 401k, you can delay taking RMDs until April 1 of the year after you reach age 70½.
The amount of your RMD is calculated by dividing the balance of your 401k by your life expectancy. The IRS provides a table that you can use to determine your life expectancy.
| Age | Life Expectancy |
|---|---|
| 70 | 12.2 |
| 71 | 11.6 |
| 72 | 11.1 |
| 73 | 10.6 |
| 74 | 10.1 |
If you fail to take your RMDs, you may be subject to a 50% penalty on the amount that you should have withdrawn.
Rollovers and Other Options
If you do not need to take RMDs immediately, you may want to consider rolling over your 401k into an IRA. This can give you more investment options and can help you avoid paying unnecessary taxes.
You may also want to consider taking a lump-sum distribution from your 401k. This can give you access to your money immediately, but you will be subject to income taxes on the amount that you withdraw.
It is important to weigh the pros and cons of each option before making a decision about how to withdraw from your 401k.