What is Required Minimum Distribution (RMD)

RMD is the minimum amount that the US Govt forces you to withdraw from your pre-tax accounts (401k or IRA) annually once you have reached an age of 70 1/2. You can always withdraw more than the required minimum but withdrawing less than RMD initiates federal penalty of 50% of the amount that should have been withdrawn but wasn’t. This is the highest penalty imposed by IRS on any non-compliance so a failure to comply is very costly.

Both 401K and traditional IRA have the RMD requirement but Roth IRA doesn’t have any RMD requirements. The primary reason for that is, that tax is already paid on the Roth IRA amount. The RMD dates differ between 401K and IRA. For IRA, the RMD starts on April 1, on the year after you have reached 70 1/2. E.g., if you are born on September 1, 1946, then you reach 70 1/2 on 1st March 2017 and hence shall be forced to take RMD from April 1, 2018, onwards.  For a 401K, you can defer this even later if you are still working. 401K RMD starts on April 1 on the year after the retirement.

To identify how much money has to be withdrawn, The life expectancy factor is used and the total value of IRA is divided by the life expectancy to obtain RMD. You can take the RMD for the first year until April 1st of next year but from next year onwards, you must withdraw your money by December 31st.

To calculate the principal (from where you withdraw), you have to use previous year’s fund balance as on December 31.

Age of retiree Life Expectancy % Withdrawal
70 27.4 3.65%
71 26.5 3.77%
72 25.6 3.91%
73 24.7 4.05%
74 23.8 4.20%
75 22.9 4.37%
76 22.0 4.55%
77 21.2 4.72%
78 20.3 4.93%
79 19.5 5.13%
80 18.7 5.35%
81 17.9 5.59%
82 17.1 5.85%
83 16.3 6.13%
84 15.5 6.45%
85 14.8 6.76%
86 14.1 7.09%
87 13.4 7.46%
88 12.7 7.87%
89 12 8.33%
90 11.4 8.77%
91 10.8 9.26%
92 10.2 9.80%
93 9.6 10.42%
94 9.1 10.99%
95 8.6 11.63%
96 8.1 12.35%
97 7.6 13.16%
98 7.1 14.08%
99 6.7 14.93%
100 6.3 15.87%
101 5.9 16.95%
102 5.5 18.18%
103 5.2 19.23%
104 4.9 20.41%
105 4.5 22.22%
106 4.2 23.81%
107 3.9 25.64%
108 3.7 27.03%
109 3.4 29.41%
110 3.1 32.26%
111 2.9 34.48%
112 2.6 38.46%
113 2.4 41.67%
114 2.1 47.62%
115+ 1.9 52.63%

The above table works if you are unmarried, or are married but the spouse is less than 10 years younger or is married but spouse is not the sole beneficiary of the IRA.

For spouses that are more than 10 years younger and sole beneficiary, use Table II of IRS Publication 590B. In case you inherited an IRA from your parent (or are not the spouse of beneficiary) and need to take RMD, use Table I of the IRS Publication 590B.

DNA - They guy next door
Dee is a technologist and a personal finance hobbyist. With over 15 years of experience in the financial domain, Dee started following the philosophy of FIRE since 2016 and is on track to reach the goal of FIRE in 10 years. He wants to teach you on how to achieve Financial Independence within a decade. All content on this site is an opinion and is for information purposes only.  It is not intended to be investment or tax advice.  Seek a duly licensed professional for investment and tax-related advice

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