Calculating Required Minimum Distributions (RMDs)

By Arturo Conde | AUG 30, 2023

Required minimum distributions (RMDs) are how the government makes sure that retirees are actually paying taxes on the money they have saved in their tax-advantaged retirement plans. For instance, these could include 401(k)s and traditional individual retirement accounts (IRAs). Determining your required minimum distribution for a given year is as easy as looking up your age on a chart and performing a simple calculation. However, it’s important to know exactly how it works, as there are stiff penalties for not meeting your required minimum distributions. For help with any retirement planning issues, consider working with a financial advisor.

Basics of RMDs

Your required minimum distribution is the amount of money you must take out of your tax-deferred retirement plan each year. RMDs only start applying when you reach a certain age, though, and they’re based on your age and how much money was in the plan at the beginning of the year.

RMDs do not apply to plans where you paid taxes on the money before it was deposited into the account, such as a Roth IRA. But when a Roth IRA account holder passes away, the beneficiary may need to make RMDs. The following retirement plans have RMD requirements in all cases:

• Traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• Rollover IRAs
• 401(k) plans
• 403(b) plans
• 457(b) plans
• Profit-sharing plans

RMDs exist so that the money in these accounts cannot be sheltered tax-free and eventually passed on as an inheritance. So if you don’t take out the required amount each year, you may be charged a 50% tax rate on any money you failed to withdraw.

When it comes to the age you need to start taking RMDs, it depends entirely on when you were born. The SECURE 2.0 Act raised the age for RMDs to 73 for those who turn 72 in 2023. This applies to both IRAs and defined contribution plans, like a 401(k).

How to Calculate RMDs

Once you reach your RMD age, they start applying to you immediately. Again, you must withdraw at least your RMD by April 1 of the year after you turn 73. For all subsequent years, you must take your RMD by Dec. 31.

The first step to seeing what your required minimum distribution for a given year is finding your age in the following chart:

72	27.4
73	26.5
74	25.5
75	24.6
76	23.7
77	22.9
78	22
79	21.1
80	20.2
81	19.4
82	18.5
83	17.7
84	16.8
85	16
86	15.2
87	14.4
88	13.7
89	12.9
90	12.2
91	11.5
92	10.8
93	10.1
94	9.5
95	8.9
96	8.4
97	7.8
98	7.3
99	6.8
100	6.4
101	6
102	5.6
103	5.2
104	4.9
105	4.6
106	4.3
107	4.1
108	3.9
109	3.7
110	3.5
111	3.4
112	3.3
113	3.1
114	3
115	2.9
116	2.8
117	2.7
118	2.5
119	2.3

Once you find your age, look for the distribution period that corresponds to it. From there, you divide the total amount in your account by your distribution period. That dollar figure is your required minimum distribution for that year. Remember to account for any and all retirement plans you have. If, for example, you have a 401(k) and an IRA, this applies to both of them.

Examples of How to Calculate Your RMDs

Here are a few examples of how to calculate your required minimum distributions:

Let’s say you have a total of $150,000 in various retirement accounts that all are subject to required minimum distributions and you are 81 years old. First, you look up 81 on the chart and see that the distribution period for that age is 19.4 Divide $150,000 by 19.4 and you see that the distribution required for that year is around $7,732. You must take that amount by Dec. 31 or end up paying a 50% tax on the amount you do not take out.

Here’s another example: If you have $75,000 in a 401(k) and $50,000 in a Roth IRA, you only must take a required minimum distribution from the money in the 401(k); taxes were paid on the money in the Roth IRA before it was deposited, therefore there is no need to require withdrawals. In this example, you are 77 years old. Using the chart above, you see that the distribution period for age 77 is 22.9. Divine that number into $75,000 and you’ll see that you must withdraw $3,275 by the end of the year to meet your required minimum distribution. 

Bottom Line

Calculating your required minimum distribution is simple but very important. For any given year, you’ll find your age on a chart and see a distribution period number. Divide the total money in your tax-deferred accounts by this number and you will find your required minimum distribution for the year. You must take that amount out of your account by the end of the year or else face tax rates of 50% on any money you don’t withdraw.

Retirement Planning Tips

• If you want to make sure you meet your required minimum distributions, consider working with a financial advisor to set up a plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• It’s important to have a specific idea of how much you need to accumulate to have a comfortable retirement and also how much money you need to regularly put aside to reach that goal. One of the most helpful resources in this project is SmartAsset’s free retirement calculator.
• When using a workplace retirement plan like a 401(k) make sure you take advantage of any employer match available to you. This is free money for your retirement, so don’t miss out.\

Photo credit: iStock.com/Pekic, iStock.com/Sangwien