For the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they're looking for the right insurance policies or trying to pay down debt. Kat has expertise in insurance and student loans.
Kat Tretina Personal Finance WriterFor the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they're looking for the right insurance policies or trying to pay down debt. Kat has expertise in insurance and student loans.
Written By Kat Tretina Personal Finance WriterFor the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they're looking for the right insurance policies or trying to pay down debt. Kat has expertise in insurance and student loans.
Kat Tretina Personal Finance WriterFor the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they're looking for the right insurance policies or trying to pay down debt. Kat has expertise in insurance and student loans.
Personal Finance Writer Rae Hartley Beck Deputy Editor of Investing and RetirementRae Hartley Beck first started writing about personal finance in 2011 with a regular column in her college newspaper as a staff writer. Since then she has become a leader in the Financial Independence, Retire Early (FIRE) movement and has over 300 by.
Rae Hartley Beck Deputy Editor of Investing and RetirementRae Hartley Beck first started writing about personal finance in 2011 with a regular column in her college newspaper as a staff writer. Since then she has become a leader in the Financial Independence, Retire Early (FIRE) movement and has over 300 by.
Rae Hartley Beck Deputy Editor of Investing and RetirementRae Hartley Beck first started writing about personal finance in 2011 with a regular column in her college newspaper as a staff writer. Since then she has become a leader in the Financial Independence, Retire Early (FIRE) movement and has over 300 by.
Rae Hartley Beck Deputy Editor of Investing and RetirementRae Hartley Beck first started writing about personal finance in 2011 with a regular column in her college newspaper as a staff writer. Since then she has become a leader in the Financial Independence, Retire Early (FIRE) movement and has over 300 by.
| Deputy Editor of Investing and Retirement
Updated: Apr 12, 2023, 6:49pm
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After years of saving, you’ve built a solid nest egg in your tax-advantaged retirement accounts. But you can’t leave that money untouched indefinitely.
Required Minimum Distributions, frequently referred to as RMDs, are how the federal government collects taxes from savings held in tax-deferred retirement plans. RMD rules require you to start withdrawing a set amount of money each year, whether you need the income or not.
Recent changes to the RMD rules expand the year at which you must start taking distributions, between 72 and 75, depending on the year of your birth.
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On Datalign Advisory's WebsiteAn RMD is the amount of money that you must withdraw from nearly all types of tax-deferred retirement accounts each year once you hit a certain age.
Many retirement accounts let your savings grow tax free over the decades, deferring the payment of income taxes until you begin making withdrawals in retirement.
By requiring you to start taking money out, the government receives the tax revenue it’s been waiting for and also ensures taxpayers aren’t accumulating tax-free wealth indefinitely.
As the name suggests, this amount is a minimum—you can always withdraw more. You can also withdraw funds from accounts and invest the money elsewhere before your RMD age hits so as to reduce the amount you must take out later.
The age at which you must start withdrawing RMDs from tax advantaged retirement accounts depends on when you were born. Check out the table below to see when you need to start taking RMDs:
Born before July 1, 1949 RMD age is 70 1/2 Born July 1, 1949 to December 31, 1950 RMD age is 72 Born January 1, 1951 to December 31, 1956 RMD age is 73 Born January 1, 1957 to December 31, 1959 RMD age is 74 Born after January 1, 1960 RMD age is 75 See More See LessBefore 2019, RMDs began in the year you turned 70 ½. In 2019, the SECURE Act raised the RMD age to 72. Then Secure Act 2.0 raised the RMD age again, based on your birthday as shown in the table above.
The following types of retirement plans have RMDs:
The deadline for taking your RMDs each year is December 31. You can delay taking your first RMD until April 1 of the year after you turn your RMD age.
If you delay your first distribution, you’ll have to take your first and second RMD in the same year. That could significantly increase your income that year, driving up your income tax bill.
It is possible to delay taking RMDs from your current employer-sponsored retirement plan if you’re still working when you reach RMD age. However, you must be less than a 5% owner of a business to do so.
If you find yourself in this situation, it’s a good idea to consult with a tax professional.
RMDs are not required for Roth accounts, including Roth IRAs, Roth 401(k)s, Roth 457(b)s and Roth 403(b)s.
This fact makes the Roth approach to retirement investing especially useful. No matter your age, you are not required to make any withdrawals from a Roth accounts, which can help lower your income tax bill and also preserve wealth for the long term.
If you don’t need the money in your account for retirement, you can leave it untouched. You can save the money for an emergency, bequeath it to your children or grandchildren, or donate it to charity after you’re gone.
When you choose to take money out of a Roth account in retirement, you’ll never owe taxes on the distributions—as long as it’s been at least five years since you opened a Roth account. That’s because you’ve already paid taxes on what you invest in a Roth account.
To calculate your RMD, divide your tax-deferred retirement account balance as of December 31 of last year by your life expectancy factor from the IRS Uniform Lifetime Table.
Let’s say Jeff is 74 and single. As of December 31 of last year, his IRA balance was $100,000. According to the IRS Uniform Lifetime Table, Jeff’s life expectancy factor is 23.8.
To calculate his RMD, he divides his balance by 23.8 to get $4,201.68. That is the minimum amount Jeff must withdraw from his IRA this year to satisfy the RMD rules.
What’s tricky about RMDs is that they increase exponentially, which can lead to a large tax bill, and higher Medicare premiums—especially if your balance is high.
Let’s say Jane is 85 and a widow. As of December 31st of last year, Jane’s IRA balance was $2,600,000. According to the IRS Uniform Lifetime Table, Jane’s life expectancy factor is 16.
To calculate her minimum RMD, she divides her balance by 16 to get $162,500. That is the minimum amount she must withdraw from her IRA this year to satisfy the RMD rules.
Let’s say Jane’s other income for this year from Social Security and her pension equals $70,000, making her modified adjusted gross income for the year $232,500 after she takes her RMDs.
She’ll pay an additional $432.60 monthly in Medicare premiums and her top marginal tax rate will be 35% federally.
If you’re married and your spouse is more than 10 years younger than you, you have to use a different life expectancy factor to determine your RMD. The IRS has a separate table for married couples with age differences called the Joint Life Expectancy Table.
With this table, your life expectancy factor is based on both people’s ages.
For example, let’s say Harriet, age 75, is married to Joe, age 64. Her IRA balance is $100,000 as of December 31 of last year. The IRS Joint Life Expectancy Table says their factor is 23.6. By dividing the balance by 23.6, Harriet’s RMD is $4,237.29.
There is no requirement to take an RMD as a single lump sum. If you prefer, you can take RMDs in monthly or quarterly installments, or any way that suits your budget needs.
There’s no tax advantage from taking out the money in staggered, smaller portions instead of a single lump sum—you’ll pay the same amount in taxes either way.
Taking payments earlier in the year could cost you in other ways, though.
The earlier you withdraw from your accounts, the less time your money has to grow. Waiting until the end of the year to take your RMD could give you more exposure to market gains. Then again, market losses later in the year might wipe out some previous gains.
Another approach is equal quarterly or monthly withdrawals, which balance the opportunity cost of more time for growth against the chances of market losses at different points in the year. Think of it like dollar cost averaging in reverse.
If you’re unsure about the best RMD strategy for your needs, talk with a tax advisor or financial advisor.
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