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    Thomas J. Brock, CFA®, CPA

    Thomas J. Brock, CFA®, CPA

    Investment, Corporate Finance and Accounting Expert

    Thomas Brock, CFA®, CPA, is a financial professional with over 20 years of experience in investments, corporate finance and accounting. He currently oversees the investment operation for a $4 billion super-regional insurance carrier.

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    Savannah Pittle is an accomplished writer, editor and content marketer. She joined Annuity.org as a financial editor in 2021 and uses her passion for educating readers on complex topics to guide visitors toward the path of financial literacy.

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  • Updated: June 23, 2023
  • 8 min read time
  • This page features 19 Cited Research Articles
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APA Brock, T. J. (2023, June 23). Required Minimum Distribution (RMD): What Is It and How Is It Calculated? Annuity.org. Retrieved May 28, 2024, from https://dev.annuity.org/retirement/required-minimum-distribution/

MLA Brock, Thomas J. "Required Minimum Distribution (RMD): What Is It and How Is It Calculated?" Annuity.org, 23 Jun 2023, https://dev.annuity.org/retirement/required-minimum-distribution/.

Chicago Brock, Thomas J. "Required Minimum Distribution (RMD): What Is It and How Is It Calculated?" Annuity.org. Last modified June 23, 2023. https://dev.annuity.org/retirement/required-minimum-distribution/.

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A required minimum distribution (RMD) is a provision of the Internal Revenue Code, which is administered by the Internal Revenue Service (IRS). The provision pertains to tax-advantaged retirement accounts, such as 401(k) plans, 403(b) plans and traditional individual retirement accounts (IRAs).

These accounts were introduced by the United States Congress to encourage saving for retirement, and they do so by offering tax incentives. For traditional plans, the perks include annual tax deductions and tax-deferred growth of savings.

All taxpayers benefit from tax deductions and many benefit from tax-deferred growth, especially those that expect to be in a lower tax bracket in retirement than during their working years. That said, income tax will inevitably be levied on all traditional retirement accounts. The government puts some certainty around the timing through its RMD rules.

Managing multiple retirement accounts across multiple companies can prove to be an accounting nightmare when it comes time to add up the appropriate Required Minimum Distribution (RMD). Consolidating your accounts together or working with an advisor to assist in these calculations can make the process stress-free.

What Is Required Minimum Distribution (RMD)?

A RMD is an IRS-mandated minimum annual withdrawal from a tax-advantaged retirement account. RMDs prevent people from indefinitely growing their retirement savings on a tax-advantaged basis. Essentially, they ensure that untaxed retirement savings and accumulated earnings are taxed at a predictable point in time.

For retirement accounts subject to the RMD rules, you must take a distribution each year, beginning at age 73 (age 72, if you reach 72 before Jan. 1, 2023). Failure to do so will usually result in a penalty of 25% of the required distribution.

This is a severe penalty and should be avoided at all costs. That said, if you are not ready to begin your RMDs, there are some strategies for postponing or minimizing them, including buying an annuity.

Retirement Plans That Require Minimum Distributions

Congress created several different types of retirement accounts that enable people to save money on a tax-advantaged basis. All employer-sponsored plans and all traditionally structured IRAs are subject to the RMD rules.

Accounts Subject to RMD Rules

The RMD rules do not apply to Roth IRAs, which are funded with after-tax dollars. However, employer-sponsored Roth accounts, such as Roth 401(k)s and Roth 403(b)s, are subject to the RMD rules.

RMD Rules for Inherited IRAs

When dealing with inherited IRAs, distinct rules apply. The guidelines are detailed and somewhat complex. Some general guidance is provided below.

In the first year of an IRA inheritance, you must use the same RMD the deceased account holder would have been required to use. For subsequent years, your RMD depends on whether you are a surviving spouse, a minor or a disabled individual.

Generally, if you inherited an IRA from an account holder who died prior to Jan. 1, 2020, you must calculate your RMD using the IRS’ Uniform Lifetime Table. However, if the account holder died after Dec. 31, 2019, you must adhere to the RMD rules established by the SECURE Act, which has distinct requirements for eligible designated beneficiaries, designated beneficiaries and non-designated beneficiaries. Depending on your classification, the timeframe and calculation of the RMDs can vary greatly.

Why Some People Don’t Like RMDs: Taxes and Medicare Premiums

Some people don’t have an aversion to RMDs. They need the money, and they don’t mind the administrative effort of computing and tracking distributions. However, many people loathe the RMD rules. They don’t need the money and they’re frustrated by the disadvantages they trigger.

RMD Drawbacks

  • The RMD rules can be an administrative hassle. They force you into bookkeeping mode, requiring you to keep tabs on IRS regulations, monitor lifetime expectancy table updates and perform ongoing computations. On top of this, you need to be detail-oriented, managing everything at the account level in order to avoid hefty penalties.
  • RMD distributions can push you into a higher tax bracket and increase your tax obligation.
  • RMD distributions can also lead to higher Medicare premiums, which are based on income.

Generally, the wealthier the individual, the greater the potential financial benefit in deferring or avoiding RMDs. Illustrating the tax savings potential of avoiding RMDs is difficult to do given the complexity of the Internal Revenue Code. However, illustrating the Medicare premium savings opportunity is feasible.

For 2023, for example, the standard Medicare Part B premium for most new enrollees was $164.90 per month. However, a married couple with income between $306,000 and $366,000 faces a Medicare Part B premium of $428.60 per month. Over a full year, the premium paid by the higher-income couple is nearly $3,200 more than the average enrollee. In many cases, this could be avoided by not taking an RMD.

Certified Financial Planner™ Marguerita M. Cheng outlines the ramifications of missing the RMD deadline.

How To Calculate RMD

The amount of an RMD can be calculated using worksheets created by the IRS. After the first year, you are required to take your distribution by the end of each calendar year.

For any given year, to compute an account-level RMD, take the balance of your account on Dec. 31 of the previous year and divide it by the distribution period, or life expectancy, corresponding with your age on the IRS’ Uniform Lifetime Table.

IRS Table

Age Distribution Period
70 29.1
71 28.2
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
Source: Internal Revenue Service

This method of calculation applies in all cases, except when an IRA account holder has a sole beneficiary spouse that is more than 10 years younger than them. In this scenario, the IRS requires you to use the Joint Life Expectancy Table, which underlies the IRS worksheet.

Did You Know?

Generally, RMDs cannot be aggregated across accounts. A distinct RMD must be taken for each unique account. Exceptions exist for 403(b) plans and traditional IRAs.

Correcting RMD Mistakes

The responsibility of calculating RMDs and making the IRS-mandated withdrawals falls entirely on the retirement account holder. If you fail to take an RMD or withdraw less than required, you will be subject to a 25% penalty of the required amount.

For example, in early 2023, assume a man reaches the age of 73 and owns a traditional IRA valued at $300,000 as of Dec. 31, 2022. Per the IRS, he is required to withdraw $11,320.75 from the account ($300,000 ÷ 26.5 age factor = $11,320.75).

The penalty for not withdrawing the required amount would be $2,830.19, or 25% of the RMD. However, if your failure to withdraw the required amount is due to a mistake, the IRS may waive the penalty – assuming you can satisfactorily explain and correct the error. The penalty can also be reduced to 10% if the mistake is corrected in a timely manner.

Depending on the circumstances and type of account, the IRS has programs and forms created to address these mistakes. One is known as the Voluntary Correction Program (VCP) and another is called the Self Correction Program (SCP).

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Strategies for Postponing or Minimizing RMDs

There are some things you can do to delay or minimize RMDs, but let’s start by highlighting two things you are not permitted to do. First, you may not put money withdrawn from a retirement account into another retirement account. Second, while you may withdraw more than the minimum amount required, you cannot apply the excess withdrawal to the RMDs associated with future years. That said, for tax purposes, your very first RMD may be split across two calendar years.

Common Strategies To Postpone or Minimize RMDs

Work Longer
If you’re employed when you turn 73 (72, if you reach 72 before Jan. 1, 2023) and participating in an employer-sponsored retirement account, you don’t have to take RMDs. This holds true while you’re working, assuming you do not own more than 5% of the company.

For a self-employed individual with a SEP-IRA, you must take an annual RMD once you reach age 73 (72, if you reach 72 before Jan. 1, 2023). However, you can offset the withdrawals by making new contributions, assuming the contributions qualify as earned income.

Donate to Charity
For traditional IRAs, a popular strategy is to donate funds to a qualified charity. The IRS allows you to donate up to $100,000 per year directly from an IRA. The donation is tax-free and counts toward your RMD, but you cannot claim the donation as a charitable deduction on your taxes.
Buy a QLAC
You can purchase a qualified longevity annuity contract (QLAC), which is a deferred annuity funded with money from a qualified retirement plan. While there are federal limits on how much you can put into a QLAC, the amount invested is exempt from the RMD rules. With a QLAC, you can defer receiving distributions until age 85.
Execute a Roth IRA Conversion
Another potentially lucrative approach is to execute a Roth IRA conversion. By converting money from a traditional 401(k) plan or a traditional IRA into a Roth IRA, you can entirely avoid RMDs. You must pay tax on the converted funds, but future withdrawals, inclusive of any growth, are tax-exempt.

Legislation Could Raise Age of First Required Minimum Distribution to 75

The RMD age was raised from 72 to 73 in 2023 following the passing of the SECURE 2.0 Act. The new rules also lowered the excise tax penalty from 50% to 25%, making it significantly less costly for Americans who miss out on taking an RMD.

But this won’t be the last change to RMDs. The SECURE 2.0 Act also set the required age to increase again in 2033, this time to 75.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: June 23, 2023

19 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Internal Revenue Service. (2023, March 14). Retirement Plan and IRA Required Minimum Distributions FAQ. Retrieved from https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
  2. Internal Revenue Service. (2022, December 8). Retirement Topics – Required Minimum Distributions (RMDs). Retrieved from https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
  3. Centers for Medicare and Medicaid Services. (2022, September 27). 2023 Medicare Parts A & B Premiums and Deductibles 2023 Medicare Part D Income-Related Monthly Adjustment Amounts. Retrieved from https://www.cms.gov/newsroom/fact-sheets/2023-medicare-parts-b-premiums-and-deductibles-2023-medicare-part-d-income-related-monthly
  4. Internal Revenue Service. (2022, August 30). Correcting Required Minimum Distribution Failures. Retrieved from https://www.irs.gov/retirement-plans/correcting-required-minimum-distribution-failures
  5. Internal Revenue Service. (2022, January 3). RMD Comparison Chart (IRAs vs. Defined Contribution Plans). Retrieved from https://www.irs.gov/retirement-plans/rmd-comparison-chart-iras-vs-defined-contribution-plans
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  7. Kapadia, R. (2019, December 19). The Secure Act Is Raising Lots of Questions for Retirees. What You Need to Know. Retrieved from https://www.barrons.com/articles/secure-act-we-answered-the-most-commonly-asked-questions-about-the-retirement-bill-51576751402
  8. Longo, T. (2019, May 21). Senate Bill would Raise Required Minimum Distribution Age to 75). Retrieved from https://www.fa-mag.com/news/senate-bill-would-raise-required-minimum-distribution-age-to-75-45006.html
  9. Cardin, B. (2019, May 20). Newly Introduced Cardin-Portman Retirement Bill Receives Widespread Praise. Retrieved from https://www.cardin.senate.gov/newsroom/press/release/newly-introduced-cardin-portman-retirement-bill-receives-widespread-praise
  10. Croce, B. (2019, May 14). Lawmakers reintroduce retirement savings bill. Retrieved from https://www.pionline.com/article/20190514/ONLINE/190519922/lawmakers-reintroduce-retirement-savings-bill
  11. Financial Planning Association of Central Florida. (2019, May 8). Make IRA Distribution Directly to Charity. Retrieved from https://www.orlandosentinel.com/business/os-cfb-ask-expert-ira-distribution-charity-20190509-story.html
  12. Godbout, T. (2018, December 20). Portman, Cardin Introduce Sweeping Retirement Reform Legislation. Retrieved from https://www.napa-net.org/news-info/daily-news/portman-cardin-introduce-sweeping-retirement-reform-legislation
  13. Strauss, G. (2018, March 21). Deadline for Retirement Account Withdrawals Is April 1. Retrieved from https://www.aarp.org/retirement/retirement-savings/info-2018/retirement-withdrawal-deadline-fd.html
  14. Franklin, M.B. (2017, February 21). Using IRAs To Reduce Medicare Premiums. Retrieved from https://www.investmentnews.com/using-iras-to-reduce-medicare-premiums-70682
  15. Lankford, K. (2016, June 27). Taking Your First Required Minimum Distribution. Retrieved from https://www.kiplinger.com/article/retirement/t045-c001-s003-your-first-required-minimum-distribution.html
  16. Lankford, K. (2016, June 20). 6 Steps to Cutting Your Taxes When You Start Taking RMDs. Retrieved from https://www.kiplinger.com/article/retirement/t045-c000-s002-cutting-your-taxes-when-you-start-taking-rmds.html
  17. Financial Industry Regulatory Authority. (n.d.). Required Minimum Distributions — Common Questions About IRA Accounts. Retrieved from https://www.finra.org/investors/alerts/rmds-questions-about-ira-accounts
  18. Internal Revenue Service. (n.d.). IRA Required Minimum Distribution Worksheet. Retrieved from https://web.archive.org/web/20230128072023/https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf
  19. U.S. Centers for Medicare & Medicaid Services. (2022). Costs. Retrieved from https://www.medicare.gov/basics/costs/medicare-costs