Required Minimum Distribution (RMD)

Written By : Elaine Silvestrini
Fact-Checked

Annuity.org content is meticulously reviewed to ensure it meets our high standards for readability, accuracy, fairness and transparency.

Annuity.org articles are spellchecked, grammatically correct and typo-free. Annuity.org editors may revise content for clarity, logic, flow and meaning. Annuity.org only uses credible sources of information.

This includes reputable industry sources, select financial publications, credible nonprofits, official government reports, court records and interviews with qualified experts.

When you turn 70 ½, you’re required by the IRS to begin minimum annual withdrawals from your tax-protected retirement accounts or face hefty penalties. This is known as a required minimum distribution, or RMD.

In order to encourage saving for retirement, Congress has created several different types of retirement accounts that enable individuals to deposit money before it is taxed. Income taxes are not paid until the money is withdrawn.

The special tax treatment comes with a number of rules. For example, with few exceptions, the money can’t be withdrawn from one of these retirement savings account until the account holder is at least 59 ½ years old.

Also, the money can’t be left in the accounts forever. After the account holder turns 70 ½ years old, the IRS mandates that withdrawals of specific minimum amounts occur every year. The withdrawals, known as required minimum distributions, or RMDs, are taxed.

There are some strategies for postponing RMDs, including at least one strategy that involves an annuity. But overall, the IRS is pretty strict about adhering to the RMD rules.

If an account holder fails to take a RMD, then he or she is penalized by the IRS.

Retirement Plans That Require Minimum Distributions

All employer-sponsored retirement plans are subject to the RMD rules. And so are traditional IRAs and IRA-based plans.

According to the IRS, RMD rules apply to the following kinds of retirement accounts:
  • SARSEP IRAs
  • SEP IRAs
  • SIMPLE IRAs
  • 401(k) plans
  • 403(b) plans
  • 457(b) plans
  • Profit-sharing plans
  • Other defined contribution plans

The rules do not apply to Roth IRAs, which are funded with money on which taxes have previously been paid. Withdrawals from Roth IRAs are not required until the owner dies. Roth 401(k) accounts, however, are subject to the RMD rules.

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

For many people, having to take money out of an account might seem like a good thing. But some retirees may find the RMD rules onerous, especially if they don’t need the money when the withdrawals are required.

They likely don’t want to have to pay taxes on the withdrawals because it could place them in higher tax brackets. The withdrawals can also lead to Medicare premium surcharges because they count as income in calculating those premiums.

In general, wealthier individuals would benefit more than others if they didn’t have to take RMDs. That’s because people who have less wealth are more likely to need to withdraw a certain amount from their retirement funds to pay their costs. The amounts they must withdraw are less likely to have a substantial impact on their overall tax bracket or their Medicare premiums.

On the other hand, wealthier individuals are more likely to face significantly higher Medicare premiums. In 2017, for example, the standard Medicare Part B premium for most new enrollees was $134 a month. However, a married couple with income more than $428,000 in 2015, would have paid $10,000 for Medicare Part B premiums in 2017.

In fact, some wealthy people avoid the higher premiums by putting money into IRAs, but RMDs can nullify that strategy.

How to Calculate Required Minimum Distributions

The IRS requires account holders to take the first withdrawal by April 1 of the year after they turn 70 ½. The amount of the RMD can be calculated using worksheets created by the IRS. After the first year, you’re required to take your distribution by the end of each calendar year.

To estimate the amount of the required minimum distribution for your account in a given year, 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 table.

IRS Table
Age Distribution Period
70 27.4
71 26.5
72 25.6
73 24.7
74 23.8
75 22.9
76 22.0
77 21.2
78 20.3
79 19.5
80 18.7
81 17.9
82 17.1
83 16.3
84 15.5
Age Distribution Period
85 14.8
86 14.1
87 13.4
88 12.7
89 12.0
90 11.4
91 10.8
92 10.2
93 9.6
94 9.1
95 8.6
96 8.1
97 7.6
98 7.1
99 6.7
Source: Internal Revenue Service

So let’s say you’re 71 years old, and you have $210,000 in your IRA. You would divide $210,000 by 26.5 (the distribution period on the table corresponding with the age of 71) and arrive at $7,924.53. This is the amount you are required to withdraw.

If you have several accounts with RMDs, you must calculate the RMD for each account. You may add up the RMD amounts and withdraw all the money from one account or any combination of relevant accounts.

This method of calculation applies in all cases, except when the spouse is the sole beneficiary of an IRA and is more than 10 years younger than the account holder. The IRS provides a different IRS worksheet for you to use if your spouse is more than 10 years younger than you and is the sole beneficiary.

Correcting RMD Mistakes

The responsibility of calculating RMDs and making the actual withdrawals falls entirely on the account holder. If you fail to take an RMD when required, or if you withdraw less than required, you will have to pay a 50 percent penalty on the amount you failed to withdraw.

A 72-year-old with an IRA account balance of $300,000 would be required to withdraw $11,718.75. The penalty for not withdrawing the required amount would be $5,859.37, or 50 percent of the RMD for that year.

However, if your failure to withdraw the required amount is due to a mistake, the IRS may waive the penalty if you satisfactorily explain and correct the error.

Depending on the circumstances and type of account, the agency 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).

Strategies for Postponing or Minimizing RMDs

There are some things you can do to mitigate RMDs. But let’s start with what you can’t do.

You may not put the money you withdraw into another IRA or Roth IRA. After paying taxes, you may invest the money in a non-retirement account.

While you may withdraw more than the minimum amount required, you can’t apply the excess withdrawal to your RMD in a subsequent year.

On the other hand, to lessen the tax impact, you can take your first RMD in two different calendar years. However, that means the second RMD will be added for tax purposes to the amount of the first RMD you took that year.

If you’re still employed when you turn 70 ½ and are participating in an employer-sponsored 401(k), you don’t have to take RMDs from that account as long as you continue to work for that employer.  If you’re self-employed and have a SEP-IRA, you still must take an annual RMD from that account once you turn 70 ½, but you can offset the RMD by making contributions to the account.

You can also roll over the amount withdrawn directly into a charitable donation, with no taxes required on the donated amount up to $100,000 a year.

You can purchase a qualified longevity annuity contract, or QLAC, which is a deferred annuity funded with assets from a qualified retirement plan. Federal rules allow you to spend the lesser of 25 percent of your retirement savings or $125,000 to purchase a QLAC.

The amount invested in a QLAC is exempted from RMD calculations until you turn 85 years old.

Interested in Buying an Annuity?

An annuity can provide you with a reliable income stream in retirement.

Legislation Would Raise Age of First Required Minimum Distribution to 75

Congress and President Trump are considering changing the age at which RMDs start from 70 ½ to 75. This is one provision of bipartisan, comprehensive retirement legislation making its way through both chambers of Congress.

The legislation also has provisions aimed at increasing savings in IRAs and 401(k)s, and helping employers provide retirement savings plans. It might also affect annuities.

In addition, Trump signed an executive order in August 2018 directing the U.S. Treasury Department to review rules relating to RMDs with the intention of raising the age at which they must start.

29 Cited Research Articles

  1. Ambrose. E. (n.d.), Keep More of Your Savings. How to give less to the IRS after you turn 70 ½. Retrieved from https://www.aarp.org/retirement/planning-for-retirement/info-2016/how-rmds-affect-retirement-savings.html#slide1
  2. Brenner, L. (2017, December 14). IRA distributions can impact Medicare premiums. Retrieved from https://www.newsday.com/long-island/ask-the-expert-lynn-brenner-1.15457896
  3. 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
  4. Carey, M. (2018, September 12). 7 Things You Need To Know About 2018 Required Minimum Distributions. Retrieved from https://www.forbes.com/sites/mattcarey/2018/09/12/7-things-you-need-to-know-about-2018-required-minimum-distributions/#5870e7ca3f4c
  5. Connick, W. (2017, November 12). Should You Contribute to Retirement Accounts After 65? Retrieved from https://www.fool.com/retirement/2017/11/12/should-you-contribute-to-retirement-accounts-after.aspx
  6. 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
  7. Daniels, A. (2019, May 20). Opinion: When it comes to required minimum distributions, a mistake can be costly. Retrieved from https://www.marketwatch.com/story/when-it-comes-to-required-minimum-distributions-a-mistake-can-be-costly-2019-05-20
  8. Epperson, S. and Dickler, J. (2019, May 18). The hidden cost of your 401(k). Retrieved from https://www.cnbc.com/2019/05/18/the-hidden-cost-of-your-401k.html
  9. Financial Industry Regulatory Authority. (n.d.). Investor Alerts. Required Minimum Distributions. Common Questions About IRA Accounts. Retrieved from https://www.finra.org/investors/alerts/rmd-common-questions-ira-accounts
  10. 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
  11. Franklin, M.B. (2017, February 21). Using IRAs to reduce Medicare premiums. Retrieved from https://www.investmentnews.com/article/20170221/BLOG05/170229982/using-iras-to-reduce-medicare-premiums
  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. Impact Partners. (2019, May 14). 5 Things To Know About RMDs. Retrieved from https://www.forbes.com/sites/impactpartners/2019/05/14/5-things-to-know-about-rmds/#3e8071ba4296
  14. Internal Revenue Service. (2018). Publication 590-B (2018), Distributions from Individual Retirement Arrangements (IRAs). Retrieved from https://www.irs.gov/publications/p590b
  15. Internal Revenue Service. (n.d.) Correcting Required Minimum Distribution Failures. Retrieved from https://www.irs.gov/retirement-plans/correcting-required-minimum-distribution-failures
  16. Internal Revenue Service. (n.d.). IRA Required Minimum Distribution Worksheet. Retrieved from https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf
  17. Internal Revenue Service. (n.d.). Retirement Plan and IRA Required Minimum Distribution FAQs. Retrieved from https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions
  18. Internal Revenue Service. (n.d.). Retirement Topics – Required Minimum Distributions (RMDs). Retrieved from https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
  19. Internal Revenue Service. (n.d.). RMD comparison Chart (IRAs vs. Defined Contribution Plans). Retrieved from https://www.irs.gov/retirement-plans/rmd-comparison-chart-iras-vs-defined-contribution-plans
  20. Kagan, J. (2019, April 8). Required Minimum Distribution (RMD). Retrieved from https://www.investopedia.com/terms/r/requiredminimumdistribution.asp
  21. Lankford, K. (2016, July). 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
  22. Lankford, K. (2016, June 25). Taking Your First Required Minimum Distribution. Retrieved from https://www.kiplinger.com/article/retirement/T045-C001-S003-your-first-required-minimum-distribution.html
  23. 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
  24. Malito, A. (2018, September 15). Rich people win (again) if the new RMD proposals become a reality. Retrieved from https://www.marketwatch.com/story/rich-people-win-again-if-the-new-rmd-proposals-become-a-reality-2018-09-06
  25. Malito, A. (2019, May 18). Congress gets serious about retirement saving. Retrieved from https://www.marketwatch.com/story/congress-gets-serious-about-retirement-saving-2019-05-16
  26. Moisand, D. (2019, March 27). Opinion: These RMDs are driving me crazy – what are my options? Retrieved from https://www.marketwatch.com/story/these-rmds-are-driving-me-crazy-what-are-my-options-2019-03-27
  27. Motley Fool. (2019, May 20). How to Deal When Required Minimum Distribution Rules Conflict With the 4% Rule. Retrieved from https://www.foxbusiness.com/markets/how-to-deal-when-required-minimum-distribution-rules-conflict-with-the-4-rule
  28. Motley Fool. (n.d.) What Are Required Minimum Distributions? Retrieved from https://www.fool.com/knowledge-center/what-are-required-minimum-distributions.aspx
  29. Strauss, G. (2018, March 21). Deadline for Retirement Account Withdrawals Is April 1. Penalties for not following IRS guidelines can be punitive. Retrieved from https://www.aarp.org/retirement/retirement-savings/info-2018/retirement-withdrawal-deadline-fd.html
Who Am I Calling?

Calling this number connects you to Senior Market Sales (SMS), a trusted partner of Annuity.org.

If you're interested in buying an annuity, a representative will provide you with a free, no-obligation quote.

SMS is committed to excellent customer service. The company can help you find the right insurance agent for your unique financial objectives.

877-918-7024