Many retirement accounts—including 401(k)s and IRAs—give individuals the ability to save for retirement in a potentially tax-advantaged manner. Contributions are often tax-deductible, and gains are tax-deferred. This means your retirement funds can grow without being taxed until you start withdrawing funds, likely into your 60s or later.
The government, however, will eventually come to collect its taxes. That’s where required minimum distributions (RMDs) come into play. The rules for these distributions can be complex, so let’s break down the basics of RMDs.
What are RMDs?
An RMD is the minimum amount you must withdraw each year from certain tax-advantaged retirement accounts once you reach a specific age. Congress established rules around RMDs because IRAs and 401(k)s are primarily designed to help fund retirement (not act as tax-free accounts for passing wealth to future generations).
The age at which you are required to begin taking RMDs is determined by the year you were born. This is known as the required beginning date (RBD). You can calculate your required beginning date with this chart:
| Year of Birth | Required Beginning Date (RBD) |
| 1950 or earlier | 72 (70.5 for those who turned 70.5 prior to 2020) |
| 1951–1959 | 73 |
| 1960 or later | 75 |
When Do RMDs Start?
RMD rules can be divided in two distinct categories: during an individual’s life and after an individual’s death. While an individual is alive, RMD rules generally apply after reaching RBD. In some cases, if you continue to work after reaching your RBD, you may be eligible to delay RMDs on certain accounts until you retire.
If you continue working for an employer past RBD and aren’t a “5% owner” of the company, you can delay your required beginning date for RMDs of that employer’s plan until you retire. For example, if your employer has a 401(k), you can push off RMDs until April 1 in the year after you retire. However, if you had an IRA on the side, it would be subject to RMD rules upon reaching RBD regardless of continued employment.
Planning Tip: If your 401(k) plan offers the ability to accept rollovers, you could roll over the IRA to the 401(k). RMD rules apply to the account the money is currently in —not where it used to be. So, rolling an IRA to a 401(k) as you continue working past the required distribution age would exempt your money from RMD rules until you retire.
RMDs must typically be withdrawn by December 31 each year. However, when an individual reaches their RBD, they will have until April 1 of the following year to take their first RMD. It’s important to note, however, that delaying the first RMD until the following year may have tax implications, as you must still take an RMD for the next year.
If you have inherited an IRA or 401(k) account, the rules are more complicated than the RMD rules applied during the account owner’s life. After an individual dies, RMD rules for the beneficiary generally apply in the year following the year of death.
To ensure proper compliance with RMD rules on inherited accounts, the beneficiary must first establish a baseline of information:
- Was the decedent the original owner of the IRA?
- Did the IRA owner die before or after RBD?
- What is the relationship between the beneficiary and the decedent?
- How old is the beneficiary?
Based on the answers above, beneficiaries are categorized into three types of beneficiaries known as Eligible Designed Beneficiaries, Non-Eligible Designated Beneficiaries, and Non-Designated Beneficiaries.
Each of these beneficiary categories has its own set of guidelines for calculating RMDs—including the 10-year rule (with and without annual RMDs), stretch RMDs in which an individual can base annual distributions on their own life expectancy, and more.
Calculating RMDs
RMDs are calculated in a simple manner. Divide the account balance as of December 31 of the previous year by your life expectancy factor, provided by the IRS.
Let’s say your 401(k) had a balance of $200,000 on December 31, 2025. If you turn 75 in 2026, find age 75 on the table and the corresponding applicable distribution period divisor of 24.6. Divide $200,000 by 24.6. The answer—$8,130.08—is the RMD amount you’d have to take from your 401(k) by December 31, 2026.
If you don’t take the RMD by the end of the year, you could owe a 25% penalty tax (10% if the RMD is corrected in a timely fashion) in addition to the ordinary income taxes you’d already owe. However, you can take out more money each year than is required—there’s no maximum cap on yearly withdrawals.
If you have multiple 401(k) accounts, you will need to perform the same calculation with each plan and take the distribution required from each individual plan. If you had four plans, you would need to take four separate RMDs—one from each.
IRAs are different. You can aggregate the account balances and take one distribution to meet the RMDs from multiple IRAs. If you have inherited accounts, you generally cannot aggregate them unless they are IRAs inherited from the same deceased owner.
What Accounts Are Subject to RMDs?
For the most part, your retirement accounts – ERISA-covered qualified retirement plans and IRAs – are subject to the rules. Qualified retirement plans include:
- 401(k)s
- Defined benefit plans
- Target-benefit plans
- ESOPs
- Stock bonus plans
- Cash balance plans
- Profit-sharing plans
- Money purchase pension plans
The rules also apply to traditional, SEP, and SIMPLE IRAs. Government plans and the Federal Thrift Savings Plan are also subject to RMDs.
Roth IRAs present a unique counter option. When an individual is alive, they’re not required to take an RMD from their account. Roth IRAs are only subject to the RMD rules once an individual has passed away.
Talk to Your Financial Advisor
Your retirement account might be yours to save and spend, but rules dictate when you might have to tap into it. Understanding how RMDs will impact your retirement and future income needs is important.
Speaking with a trusted professional can help you navigate and prepare for RMDs. But don’t start a month before your first RMD is due. It’s ideal to plan years in advance of your first RMD so you can understand how and when to use your retirement plan balances in a way to get the most out of all your savings for retirement.
If you are looking for a financial advisor to help with your retirement planning, we’re here to help.
Tom Fridrich is a non-registered associate of Cetera Wealth Services LLC.
This article is for educational purposes only and is not meant to be relied upon as actual financial advice nor RMD advice or guidance. Cost basis, additional accounts, account aggregation, taxes, and other factors could also impact the required minimum distribution strategies for an individual. If you need assistance with RMDs, contact a qualified financial advisor or tax professional.
Converting from a traditional IRA to a Roth IRA is a taxable event.
Examples provided are hypothetical and are for illustrative purposes only. Performance presented in the examples provided should not be deemed a representation of past or future results.
Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
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