Getting Started With Required Minimum Distributions
Learn the basics about starting and managing required minimum distributions (RMDs)
What are Required Minimum Distributions (RMDs)?
When you reach age 73, the IRS requires you to begin annual withdrawals from most retirement accounts (excluding Roth IRAs). These withdrawals are called required minimum distributions, or RMDs, and are included in your taxable income.
It's important to keep track of your RMDs. Each year's RMD must be taken by December 31, with the exception of your first year RMD. Beginning January 1, 2023, there's a 25% penalty tax if you don't take them on time, or if you take less than the full amount.
We encourage you to set up an automatic withdrawal plan so you don't miss an RMD. You also have the option to keep your money working for you by reinvesting your withdrawal. Give us a call today to automate your RMDs, 1-800-345-2021.
What happens if you don’t take an RMD?
If you do not take your RMD, or if the amount you take is not large enough, you may have to pay a 25% excise tax on the amount not distributed as required. If you missed taking an RMD, we encourage you to contact your tax advisor to discuss your options.
In accordance with the SECURE Act 2.0, the age requirements for RMDs are:
- Beginning January 1, 2023, the starting age for RMDs will increase from 72 to 73.
- If you turned 72 in 2022 or earlier, you'll need to continue taking your RMDs.
What Accounts Require RMDs?
RMDs are required for the following accounts:
Traditional, Rollover, SEP, SARSEP and SIMPLE IRAs
403(b), governmental 457(b) and qualified retirement accounts
Designated Roth accounts in a 401(k), 403(b) and governmental 457(b)
Beneficiary accounts of one of the above account types have rules specific to inherited assets. Download the Distribution Options for details.
Note that RMDs are not required for Roth IRAs during the owner’s lifetime.
When is the deadline for taking RMDs?
Generally speaking, each year's RMD must be taken by December 31.
First Year RMD
IRAs (including SEPs and SIMPLE and SARSEP IRAs)
Due on April 1 of the year following the calendar year in which you turn 73.
401(k), profit-sharing, 403(b), or other defined contribution plan
Generally, April 1 following the later of the calendar year in which you:
Reach age 73, or
Retire (if your plan allows this).
403(b), Governmental 457(b), and Qualified Retirement Accounts
If you participate in a qualified retirement plan and own at least 5% of the company, the IRA rules above apply.
If you do not own at least 5%, or if you participate in a 403(b) or governmental 457(b), you will need to check with your employer to determine if the plan’s terms require you to begin taking RMDs when you reach RMD age or if you can wait until you retire. If the plan does not allow you to wait until retirement, the IRA rules above apply.
How is a RMD calculated?
Generally, a RMD is calculated for each account by dividing the prior December 31 balance of that account by a life expectancy factor that the IRS publishes in tables in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).
Although IRS rules require a minimum distribution amount, you can take more than the RMD if you need the extra income. Any distribution is generally subject to taxes; therefore, please be sure to talk to your tax advisor about your needs as you plan your RMD.
If your RMD amount isn't shown on your account statement, call us and we’ll calculate it for you. Or use our Current Year RMD calculator.
What if I have multiple accounts?
Your RMD is calculated for each account, but you may be able to aggregate RMDs for the withdrawal. For IRA RMDs, you may withdraw the entire amount from a single IRA or take a portion from multiple IRAs. The same is true for 403(b)s, as long as they have the same plan sponsor. For other types of plans, such as 401(k) and 457(b), you usually have to withdraw the RMD from each account.
Calculating Your RMD
To calculate your RMD, first find your December 31 age in the left columns of the IRS Uniform Lifetime Table to determine your life expectancy factor. Then, divide your prior year's December 31 plan value by your life expectancy factor. Each year you will use a new life expectancy factor and the prior year's December 31 value.
Age on 12/31 of Distribution Year & Required Distribution Period (Years):
Age 72-83 | Age 84-95 | Age 96-107 | Age 108+ |
72: 27.4 | 84: 16.8 | 96: 8.4 | 108: 3.9 |
73: 26.5 | 85: 16.0 | 97: 7.8 | 109: 3.7 |
74: 25.6 | 86: 15.2 | 98: 7.3 | 110: 3.5 |
75: 24.6 | 87: 14.4 | 99: 6.8 | 111: 3.4 |
76: 23.7 | 88: 13.7 | 100: 6.4 | 112: 3.3 |
77: 22.9 | 89: 12.9 | 101: 6.0 | 113: 3.1 |
78: 22.0 | 90: 12.2 | 102: 5.6 | 114: 3.0 |
79: 21.1 | 91: 11.5 | 103: 5.2 | 115: 2.9 |
80: 20.2 | 92: 10.8 | 104: 4.9 | 116: 2.8 |
81: 19.4 | 93: 10.1 | 105: 4.6 | 117: 2.7 |
82: 18.5 | 94: 9.5 | 106: 4.3 | 118: 2.5 |
83: 17.7 | 95: 8.9 | 107: 4.1 | 119: 2.3 |
120 and over: 2.0 |
Source: Internal Revenue Service, as of 1/1/2023.
Note: If your spouse was your sole beneficiary for the entire calendar year and your spouse is more than 10 years younger than you, you can use the IRS joint life expectancy table, which may reduce your RMD amount. You will need to let us know if you want us to use the joint life expectancy table in our calculations.
What can I do with my RMD?
Are your expenses covered for the year, and you don’t need the RMD money right now? The money doesn’t have to sit in a checking or low-yielding savings account. Here are some ways to put that RMD to work for the future.
Reinvest your RMD
You can invest an RMD in a taxable investment account—but not back into most retirement accounts. We can help you choose investments that match your goals.
You also might be able to contribute your RMD to a Roth IRA as long as you have earned income in an amount equal to or greater than the RMD amount you contribute to the Roth IRA. (The RMD amount you take is still considered taxable income in the year you take it.) Roth IRAs have no RMDs during your lifetime.
Contribute your RMD to a 529 Plan
Your RMD may be an excellent resource for funding a tax-deferred 529 education savings plan for a loved one. RMDs are taxable distributions, and if you invest them in another taxable account, the money will continue to be subject to taxes. But put in a 529, the money has the potential to grow tax deferred and withdrawals for qualified education expenses would be tax free.¹
Give your RMD to Charity
The higher the balance in your tax-deferred accounts, the higher your RMD and perhaps your tax bracket. But if you're over age 73 you can reduce your tax burden by having your RMD check issued directly to a qualified charity of your choice—up to $100,000 per year is tax free. This is called a qualified charitable distribution (QCD).
The earnings portion of non-qualified withdrawals is subject to federal and state income taxes and a 10% federal penalty.
Please consult your tax advisor for more detailed information regarding the Roth IRA or for advice regarding your individual situation.
Taxes are deferred until withdrawal if the requirements are met. A 10% penalty may be imposed for withdrawal prior to reaching age 59½.
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.