What is an RMD?
An RMD, or Required Minimum Distribution, is the smallest amount of money that the IRS mandates you must withdraw from most retirement accounts each year, typically starting the year you turn 73.
However, there are exceptions to the age requirement for those who:
- Turned 72 in 2022 or earlier, as their RMDs likely began the year they turned either 70½ or 72. The Secure Act of 2019 changed the RMD age from 70½ to 72, and the Secure 2.0 Act of 2022 increased it to 73 starting in 2023 and 75 in 2033.
- Are employed and have a workplace retirement plan allowing RMD postponement. These individuals may not need to take their first RMD until they retire.
Additionally, there's an exception to the deadline for those who:
- Are working and have a workplace retirement plan allowing RMD postponement. They have an extended deadline for their first RMD, with the IRS granting them until April 1 of the year after they retire.
The Consequence of Not Meeting Your RMD Deadline
If you miss the deadline for taking out your RMD in full, the IRS may impose a penalty. This penalty is now set at 25% of the RMD amount you didn't withdraw on time. Before 2023, this penalty used to be even higher at 50%, but the Secure 2.0 Act reduced it to 25% starting that year.
For example, if your RMD for 2023 is $10,000 and the deadline is December 31, failing to withdraw it by then could result in a $2,500 penalty.
Retirement Accounts That Require RMDs
RMDs apply to various retirement accounts, including:
- Traditional individual retirement account (IRA)
- Simplified Employee Pension (SEP) IRA
- Savings Incentive Match Plan for Employees (SIMPLE) IRA
- 401(k)
- 403(b)
- 457(b)
Roth IRAs are exempt from RMDs for the original account owner's lifetime. Additionally, starting in 2024, Roth 401(k) plans won't be subject to RMDs, thanks to a provision in the Secure 2.0 Act.
How Much Is an RMD?
The specific RMD amount varies based on your life expectancy and the balances in your retirement accounts. The IRS provides worksheets to assist in calculating your RMD.
While your retirement plan manager may calculate the RMD for you, it's crucial to note that individuals are ultimately responsible for ensuring they withdraw the correct RMD amount. The IRS emphasizes:
