RMDs by age: Understanding how distributions change as you get older (2024)

For many retirement accounts, the Internal Revenue Service (IRS) requires you to withdraw a certain amount of funds from your savings each year. This is what's known as your required minimum distribution (RMD).

Not every type of retirement account mandates that account holders take RMDs annually. However, those that do require it have rules that change with age—and penalties if those guidelines aren't followed.

Here's what you need to know about the requirements for RMDs by age, including how to calculate your RMDs and avoid penalties.

A required minimum distribution is a rule that requires you to withdraw a minimum amount from tax-qualified retirement plans once you reach a certain age. The passage of theSECURE ACT 2.0changed how that age is determined using a sliding scale:

• If you turned 72 in 2022 or earlier, you start taking RMDs at 72.
• If you turn 72 after 2022 and 73 before 2033, you start taking RMDs at 73.
• If you turn 74 after 2032, you start taking RMDs at 75.

Note that if you turn 72 in 2023, your RMD is due in 2024 with no RMD for 2023.

You can use your RMDs any way you like—as income, to donate to charity or to cover other expenses. You can't reinvest your RMD funds into a 401(k) or IRA, but you can put the money into savings or a (taxable) brokerage account.

Your RMDs are taxed at your current income level. Because you contribute pretax dollars to these savings accounts, the IRS wants to make sure you pay your deferred taxes on them. Consider exploring how you can plan for taxes in retirement with a financial advisor.

The IRS mandates RMDs from most, but not all, retirement accounts. If you have any of the following retirement savings accounts, you're subject to RMD regulations:

• Traditional individual retirement accounts (IRAs)
• Simplified Employee Pension (SEP) IRAs
• Savings Incentive Match Plan for Employees (SIMPLE) IRAs
• Beneficiary IRAs (non-spouse beneficiaries of Roth IRAs)
• 401(k) plans including Roth 401(k)*
• 403(b) plans including Roth 403(b)*
• 457(b) plans including Roth 457(b)*
• Profit-sharing plans
• Other defined contribution plans

If you have a Roth IRA, you don't need to comply with RMD rules. These accounts don't require withdrawals, because you use after-tax dollars to contribute to them.

*While Roth versions of 401(k), 403(b) and 457(b) accounts are mentioned above as being subject to RMDs, beginning in 2024 RMDs from those qualified Roth retirement plans will be eliminated.

The IRS has a worksheet to help calculate your RMD. The formula starts with the balance of your retirement accounts at the end of the previous year. Then, use one of three tables provided by the IRS:

• Uniform Lifetime Table– for all unmarried IRA owners calculating their own withdrawals, married owners whose spouses aren’t more than 10 years younger, and married owners whose spouses aren’t the sole beneficiaries of their IRAs
• Table I (Single Life Expectancy)is used for beneficiaries who are not the spouse of the IRA owner
• Table II (Joint Life and Last Survivor Expectancy)is used for owners whose spouses are more than 10 years younger and are the IRA’s sole beneficiaries

Whether or not RMDs increase by age is dependent on several factors, they can increase but are ultimately based on account balances, life expectancy and age. Once you begin withdrawing your RMDs, you'll find that the exact amount changes yearly. That's due to the life expectancy portion of the calculation, which is called your life expectancy factor or distribution period. As you age, your factor decreases, and your RMDs may grow as you get older.

If youinherited an IRA,you still need to satisfy the original account holder's RMD requirement if they needed to take the distribution but hadn't. For the year the owner passed, use the RMD the owner would have had to withdraw. After that, distribution under the SECURE Act rules may depend on the date of their passing.

Say you turn 73 in 2024 and your qualified account balances on Dec. 31, 2023 are $750,000. You're married, with a spouse only a year younger, so you use the standard Uniform Lifetime Table. Your factor is 26.5. To find your RMD, divide $750,000 by 26.5 to get $28,302. That's the amount you must withdraw by Dec. 31, 2024, to avoid IRS penalties.

Using the same example, consider if you turned 80 in 2024 instead. You use the same table in this case, but your factor is 20.2. So, you divide $750,000 (your total qualifying retirement amount balances at the end of 2023) by 20.2. Here, your mandatory withdrawal is $37,129. The factor decreased because your age increased, which caused your RMD to increase.

If your spouse is 10 years younger than you or more, use Table II and find the factor at the intersection of your ages. Then, use that factor in the calculation instead. For example, if you turn 73 in 2024 and your spouse turned 60, your factor from Table II is 28.6 (versus 26.5). That's slightly higher than the factor for people who are married to a spouse closer in age, so the RMD is slightly smaller at $26,224 because of the age gap.

You need to remember two important dates:

• Dec. 31.Your RMD calculations are based on the total amounts in your retirement savings accounts (not including your Roth IRA) as of Dec. 31 of the previous year.

• April 1.You must withdraw your first RMD by April 1 after the year you reach your RMD age. You only have to remember this date once. After that, you must withdraw your RMDs by Dec. 31 each year.

For example, if you turn 73 in October 2024, you have until April 1, 2025, to withdraw your first RMD (based on the total balance of your Dec. 31, 2023, retirement account values). After that, you must take any subsequent RMDs by Dec. 31 of that year. For 2024, you must withdraw your RMDs by Dec. 31, 2024, based on your 2023 account values.

One factor to consider, especially during the first year you're required to take RMDs, is how the timing of your withdrawals can impact your taxes. If you wait until April 1 the year after your RMD age, you may have to pay taxes on two RMDs—the one you took in April and the one you have to take by Dec. 31. Consult with a financial advisor or tax professional to determine the best way to handle this situation.

Unfortunately, if you don't take your RMDs, the IRS will levy a penalty that amounts to 25% of the amount you were supposed to withdraw. That penalty is on top of the taxes you owe for your required withdrawal.

Sometimes, you may realize you made a mistake calculating your RMD or got confused about the dates and missed a deadline. If you correct the mistake within the correction window, the penalty shrinks to just 10%. The correction window begins on the date the tax is imposed and ends at the earliest of: when the Notice of Deficiency is mailed to the taxpayer, when the tax is assessed by the IRS, or the last day of the second tax year after the tax is imposed.

Another option is to get your RMDs automatically calculated and withdrawn. Many custodians can do that for you, or you can ask a financial advisor about your options for automating the process.

TheSECURE Actwent into effect in January 2020 and was modified by the SECURE Act 2.0 in 2022. The acts together aim to increase the number of Americans saving for retirement and help them build assets. Among other changes to the tax code, it moved the RMD age to a sliding scale beginning at 72 and going up to 75.

This change stems in part from the fact that people are living longer and spending more time enjoying retirement. Gaining a few years of savings can help extend retirement incomes for many.

The SECURE Act 2.0 also reduces the penalty on non-withdrawals to 25% or 10% if you take it by the end of the second year it was due.

You have plenty of things to plan for as you enter retirement. Working with alocal financial advisor can help you develop a strategy for your retirement planning needs, including navigating the rules and regulations around required minimum distributions.