Required Minimum Distributions
The IRS let your Traditional IRA and 401(k) grow tax-deferred for decades — eventually, it wants to actually start collecting on that deal, whether you need the money yet or not.
What Is It
Required minimum distributions (RMDs) are the minimum amount you’re legally required to withdraw each year from tax-deferred accounts like a Traditional IRA or 401(k), starting at age 73. The amount is calculated by dividing your account balance by an IRS life-expectancy factor that increases as you age, so the required percentage grows larger each year.
Why It Matters
This age is scheduled to rise to 75 for anyone born in 1960 or later, starting in 2033. Roth IRAs are exempt from RMDs during the original owner’s lifetime entirely — a real advantage over Traditional accounts if you don’t want to be forced to withdraw money you don’t actually need yet. Missing an RMD carries a real penalty: 25% of the amount you should have withdrawn, reduced to 10% if corrected within two years.
Quick Example
At age 73, the IRS divisor is 26.5 — meaning your first RMD is roughly 3.77% of your account’s prior year-end balance. On a $1,000,000 Traditional IRA, that’s about $37,700 you’re required to withdraw (and pay ordinary income tax on) that year, whether or not you actually need the income.
That 3.77% doesn’t stay 3.77% — see how the required percentage climbs as you age, and what that means in dollars under one growth scenario:
Try It Yourself
See how required withdrawals interact with the rest of your retirement income picture.
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See how required withdrawals from tax-deferred accounts interact with your full retirement income.