What is a Required Minimum Distribution?
A Required Minimum Distribution (RMD) is the minimum amount of money that the IRS mandates you must withdraw from your tax-deferred retirement accounts (such as traditional IRAs, 401(k)s, 403(b)s, or SIMPLE IRAs) each year.
Because these accounts let you save pre-tax money, RMDs exist to ensure the government eventually receives income tax on those retirement savings.
What Age Do RMDs Begin?
Under the SECURE Act 2.0, the starting age for RMDs depends on your birth year:
- Born before 1951: RMDs began at age 72 or 70½.
- Born between 1951 and 1959: Your RMDs begin at age 73.
- Born 1960 or later: Your RMDs begin at age 75.
How is Your RMD Calculated?
Your RMD is determined by dividing your account balance on December 31 of the previous year by a “distribution period” number provided by the IRS.
The IRS provides three life expectancy tables. Most retirees use the Uniform Lifetime Table (Table III), which assumes a joint life expectancy with a beneficiary who is not more than 10 years younger.
The Costly Penalty for Missing an RMD
If you fail to withdraw your full RMD amount by the deadline, the IRS imposes a severe tax penalty:
- Standard Penalty: 25% of the amount you failed to withdraw.
- Corrected Penalty: Reduced to 10% if you correct the error and withdraw the missing amount within two years.
For example, if your RMD was $10,000 and you withdrew $0, the standard tax penalty is $2,500.