The IRS spends a lot of energy making sure people don’t tap their retirement accounts, imposing taxes and penalties on most early withdrawals. So it might surprise you to learn that at a certain point, the agency forces you to take money out of your account through required minimum distributions.
These distributions, often referred to as RMDs, are primarily enforced on tax-deferred retirement accounts: workplace plans such as 401(k)s and 403(b)s, as well as traditional individual retirement accounts and self-employed retirement plans, including SIMPLE and SEP IRAs. Roth 401(k) accounts are also subject to RMDs.
The basic RMD rules
You’ll note one account missing from the list above: Roth IRAs don’t require RMDs while the account holder is alive. But if you’ve inherited a Roth IRA, you might be required to take distributions. You can read more about the rules for Roth IRA RMDs here.
RMDs are a minimum amount you must withdraw from your retirement account each year by Dec. 31, generally beginning in the year you turn 70½. There are a couple of exceptions:
- The IRS gives you a little leeway in your first year: You get until April 1 of the year following the year in which you turn 70½ to take your first RMD. However, using that extra time means you’ll need to take two RMDs in one year — one for the year you turned 70½ and one for the current year.
- Distributions from 401(k), 403(b) and other profit-sharing or defined-contribution plans can be put off until you actually retire, if you’re still working at age 70½.
If you skip a required distribution or fail to take enough, there’s a steep, steep penalty: When you file taxes, you’ll owe 50% of the amount not distributed.
Other important things to know: You can always withdraw more than the minimum — this is a floor, not a ceiling — and unless the money you withdraw was already taxed, these distributions will be taxable as income in the year you take them. In other words, this is an opportunity for the IRS to start collecting those taxes you’ve been able to defer.
How RMDs are calculated
RMDs are calculated via some easy math — just kidding! This is the IRS we’re talking about.
To calculate your retired minimum distribution for the current year, divide your account balance at the end of the last year by a distribution period that is based on your age. Those periods are available in two tables:
- If you’re married, the sole beneficiary of your account is your spouse, and he or she is more than 10 years younger than you, you will use the Table II, the Joint Life and Last Survivor Expectancy Table.
- All other original IRA owners will use the Table III, the Uniform Lifetime Table, to calculate their withdrawals.
You could also skip that song and dance and use our calculator below.
RMDs when you have multiple accounts
If you have more than one retirement account that’s subject to RMDs, you’ll have to calculate the distribution for each account separately. However, if you have more than one IRA, the IRS allows you to take your total IRA RMD from just one of them.
The same rule applies if you have more than one 403(b) plan. But if you have multiple 401(k)s or 457(b)s, you must pull an RMD from each account separately.
If you need help staying on top of accounts and maximizing your retirement plan, you may want to find a financial advisor that suits your needs. Many work on a fee-only basis.
More on retirement from NerdWallet:
- Calculate whether your retirement is on track
- Browse our roundup of the best Roth IRAs
- IRA vs 401(k): Which should you invest in?
Arielle O’Shea is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org. Twitter: @arioshea.