IRA withdrawals and RMDs | Vanguard (2024)

FAQs

How do I calculate my required minimum distribution from my IRA? ›

Generally, a RMD is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor that the IRS publishes in Tables in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

Can I withdraw more than the RMD? Yes, you can always take out more than the RMD amount. However, keep in mind that your withdrawal will be taxed as ordinary income, and any excess that you take out does not count toward your RMD amount for future years.

For investors who plan to use their RMDs as a source of retirement income, a monthly payment may be a good choice. Keep in mind that while you'll pay the same amount of income tax no matter when you receive the money, delaying your RMD until year-end gives your money more time to grow tax-deferred.

You can take your annual RMD in a lump sum or piecemeal, perhaps in monthly or quarterly payments. Delaying the RMD until year-end, however, gives your money more time to grow tax-deferred. Either way, be sure to withdraw the total amount by the deadline.

Here are a couple of examples for someone with an IRA worth $500,000 on Dec. 31, 2022. If he or she is beginning to take RMDs in 2023, at age 73, the RMD would be $18,868. Or if this person were turning in 2023, the distribution amount would be $31,250.

Use our required minimum distribution (RMD) calculator to determine how much money you need to take out of your traditional IRA or 401(k) account this year. Note: If your spouse is more than ten years younger than you, please review IRS Publication 590-B to calculate your required minimum distribution.

There's no fixed rule for when you should take an RMD during the calendar year; you have the flexibility to decide for yourself or with your advisor. Some opt to take an RMD at the beginning of the year to help fund their living costs or to cover a large expense.

Common mistakes include withdrawing the wrong amount and forgetting to take your RMD.

Because RMDs are taxable, they can increase your taxable income – and higher taxable income can impact benefits like Social Security and Medicare. Social Security benefits can be taxed based on how much provisional income you have.

Drawbacks of required minimum distributions

The downside of RMDs is that once you reach 70 1/2, you have no choice but to start taking withdrawals. But since those withdrawals are treated as ordinary income, they automatically increase your tax burden.

Does taking RMD monthly easier to handle than yearly? ›

Cash flow management: Making monthly withdrawals allows you to treat this as a regular income. Many retirees prefer this style of cash flow over a lump sum format, as it helps with personal finance and budgeting. This is often the biggest advantage to making monthly or quarterly withdrawals.

Tip: Many people choose to have taxes withheld from their RMDs, as it is counted as ordinary income. If you choose not to do this, make sure you set aside money to pay the taxes. And be careful—sometimes underwithholding can result in a tax penalty.

The 4% rule states that you withdraw no more than 4% of your starting balance each year in retirement. However, the 4% rule doesn't guarantee you won't run out of money, but it does help your portfolio withstand market downturns, by limiting how much is withdrawn.

Many accounts that require RMDs are tax-deferred accounts, which means that the contributions were made with dollars you hadn't paid taxes on, and your tax liability is due at the point of withdrawal.

They begin at age 72 or 73, depending on your circ*mstances and continue indefinitely. There is, unfortunately, no age when RMDs stop. You must continue to take them for the lifetime of the account.

Generally, a designated beneficiary is required to liquidate the account by the end of the 10th year following the year of death of the IRA owner (this is known as the 10-year rule).

Fortunately, you don't have to worry about counting days; you're considered 59 ½ when you reach the same calendar day of your birthday in the six month after your birthday (1 in the above example). The 59 ½ rule only applies to IRAs and not to employer-sponsored plans like 401(k)s or 403(b)s.

Age 59½ and under: Early IRA withdrawal penalties—with some exceptions. Some types of home purchases are eligible. Funds must be used within 120 days, and there is a pre-tax lifetime limit of $10,000.