For years, your IRA and 401(k) grew without the IRS asking for a share. At 73, that changes. You generally have to start taking required minimum distributions, or RMDs, every year.
The starting age has moved over time. It was 70 and a half for decades, then rose to 72, and now sits at 73.
The first one comes with a choice most people don’t know they have. Getting it right can keep two withdrawals off the same tax return.
Which Accounts Have RMDs
The rules cover most tax-deferred retirement accounts, including:
- Traditional, SEP, and SIMPLE IRAs
- 401(k), 403(b), and 457(b) plans
- Profit sharing and other defined contribution plans
Roth IRAs are different. You don’t have to take RMDs from a Roth IRA, or from a Roth account in a 401(k) or 403(b), while you are alive.
The First Year Timing Choice
For IRAs, your first RMD is due by April 1 of the year after you turn 73. Every RMD after that is due by December 31.
That April 1 date sounds like extra time, but it can backfire. If you wait, you will take two RMDs in the same year. The delayed first one is due by April 1, and the second is due by December 31. Both land in that year’s taxable income.
Here is how that looks. Say you turn 73 in August. If you wait, your first RMD is due by April 1 of the next year, and your second is due by December 31 of that same year.
Taking the first RMD by December 31 of the year you turn 73 spreads the two across separate tax years. If you are planning your first one, here is a deeper guide to the timing rules for required minimum distributions.
Still Working? Your 401(k) May Wait
Employer plans can follow a different clock. If your plan allows it, you may be able to delay RMDs from that plan until April 1 after the year you retire. Your plan document decides, so check it before you assume.
That delay has limits. It covers only the plan at the job you still hold, so old 401(k)s from past employers still need RMDs. It is not available if you own more than 5 percent of the business. Your IRAs still follow the age 73 schedule, even while you keep working.
How the Amount Is Set
Your RMD for a year equals your account balance on December 31 of the prior year, divided by a factor from the IRS Uniform Lifetime Table. A different table applies if your spouse is your sole beneficiary and is more than 10 years younger.
For IRAs, the amount is your responsibility, even if your custodian runs the number for you. Double check it each year.
You can always take more than the minimum. Withdrawals count as taxable income, except for any part that was already taxed.
To run a quick estimate with your own balance and age, try the SEC’s free RMD calculator on Investor.gov. It takes about a minute and gives you a number to plan around.
Juggling More Than One Account
Many retirees have several accounts, and the rules differ by type.
- IRAs: figure the RMD for each IRA, then take the total from one IRA or spread it across several.
- 403(b) accounts: figure each one separately, then take the total from one or more of them.
- 401(k) and 457(b) plans: take each plan’s RMD from that plan.
You can’t mix types, either. An IRA withdrawal won’t cover a 401(k) RMD, and a 401(k) withdrawal won’t cover an IRA RMD.
The Cost of Missing One
Skip an RMD, or take too little, and you may owe a 25 percent excise tax on the shortfall. The rate drops to 10 percent if you fix it within two years. Mark the deadlines on your calendar now, and set a reminder a few weeks ahead of each one. A little planning at 73 can save you a crowded tax return at 74.