Required minimum distributions (RMDs) are the minimum amount that you must withdraw from certain tax-advantaged retirement accounts. They begin at age 72 or 73, depending on your circumstances and continue indefinitely. There is, unfortunately, no age when RMDs stop. You must continue to take them for the lifetime of the account. You may want to work with a professional financial advisor to help you make a retirement withdrawal strategy that works for you.
What Are Required Minimum Distributions?
A required minimum distribution is the minimum amount that you must withdraw each year from certain tax-advantaged retirement accounts. This law mostly applies to pre-tax accounts like 401(k) and IRA plans. You do not have to make minimum withdrawals from Roth IRAs, although, in an exception to this rule, you do have to take minimum distributions from Roth 401(k)s.
The IRS requires minimum distributions as a way to ensure that you pay taxes eventually. Pre-tax accounts represent a basket of money on which you have never paid either income or capital gains taxes. For some retirees, particularly wealthier ones, without an RMD they could sit on this money indefinitely and eventually hand it down to their heirs tax-free. (For more information on how this would work, see our articles on the step-up loophole.)
This is why the IRS does not require minimum distributions from Roth IRAs. Since a Roth IRA is a post-tax retirement account, you have already paid income taxes on the money and the IRS doesn’t need to ensure that you make withdrawals.
How Much Are Required Minimum Distributions?
The specific amount that you must withdraw varies based on both your age and the value of your retirement account. The IRS lists this in Publication 590. In it, you can look up your current age and find a life expectancy factor based on that age. You divide the value of your retirement account by that life expectancy factor to figure out how much you must withdraw.
Required minimum distributions are annual, meaning that you can structure these withdrawals as you see fit over the course of the year but must have met the minimum amount by December, 31. If you do not, the IRS will charge you a tax penalty. This penalty is typically set at 50% of the difference between what you did withdraw and what you should have withdrawn.
For example, say that you have a life expectancy factor of 10 and $60,000 in your retirement account. You must withdraw at least $6,000 by the end of the year. If instead, you only take out $5,000, the IRS will charge you a $2,500 fee.
It’s important for investors to note that they do not have to keep this money in cash. You can reinvest this money into a private investment portfolio if you don’t need to spend it.
When Do Required Minimum Distributions Begin?
The start date for required minimum distributions has been rolled back a few times over the years, most recently with the SECURE 2.0 Act. If you turned 72 during or before the year 2022, you must begin taking required minimum distributions from qualifying retirement accounts on the later of either:
On April 1 the year after you turn 72
For workplace plans, April 1 of the year after you retire
Beginning on January 1, 2023, the RMD age increases to 73. This means that if you turn 72 in 2023 or later you must begin taking required minimum distributions from qualifying retirement accounts on the later of either:
On April 1 the year after you turn 73
Or, for workplace plans, April 1 of the year after you retire
This cutoff age will step up over the next 10 years, reaching age 75 in 2033.
For example, say that Elizabeth is currently retired and turns 73 in October 2023. She must begin taking minimum distributions from her qualified retirement accounts beginning on April 1, 2024. On the other hand, say that she is still working. In that case, the same rule will apply to her IRA, but she can defer making withdrawals on her 401(k) until the year after she retires.
When Do Required Minimum Distributions Stop?
Required minimum distributions do not stop. There is no maximum age for this rule, nor do payments phase out on any other basis aside from finances. Your required minimum distributions are based on an account’s underlying assets, meaning that if a retirement account runs out of money you will no longer have any associated withdrawal requirements.
Also, note that each category of retirement account is treated separately for RMD…
Read More: Is There an RMD Cut-Off Age?