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Here are some important things to know about required minimum distributions, also known as RMDs.
One, you are required to withdraw an RMD annually beginning the year you turn 73.
Two, accounts that require RMDs include traditional IRAs, 401(k)s and 403(b)s. Roth accounts have no RMD for the original owner.
Three, RMD amounts are based on your age and your account balance at the end of the prior year.
Four, you can choose to take your distribution as a lump sum or in installments throughout the year.
Five, how you use your RMD is up to you. You can spend it, reinvest it in a taxable account, make a qualified charitable distribution or fund a grandchild's education.
Start planning for your RMD before you turn 73.
Contact a T. Rowe Price financial consultant to talk it over today.
Key Insights
For individual retirement accounts (IRAs), you must take your first RMD by April 1 of the year after you turn age 73, regardless of whether you are retired. For each year after turning age 73, you must take an RMD by December 31.
If you have multiple IRAs, you must calculate the appropriate RMD for each one. The total amount can be taken from one or more IRAs to satisfy the distribution—as long as the total RMD amount is withdrawn.
If you have multiple prior employer-sponsored retirement accounts (such as 401(k)s), you will have to contact your prior employer to calculate the RMD and send you a distribution.
Once the RMD is distributed, you don’t have to spend it, but it cannot remain in a tax-deferred account.
Judith Ward, CFP®
Thought Leadership Director
Generally, beginning at age 73, retirement account holders are required to take RMDs from their tax-deferred retirement accounts. These include Traditional, Rollover, SEP, and SIMPLE IRAs and employer-sponsored retirement plans. You must pay federal, and sometimes state, income taxes on the taxable amounts of these distributions.
RMDs aren’t optional. If you don’t take your RMD, or take out too little, you may face an IRS penalty tax of 25% of the amount not distributed.*
Below are responses to eight commonly asked questions about RMDs:
1. When Do I Need to Take My RMD?
For IRAs, you must take your first RMD by April 1 of the year after you turn age 73, regardless of whether you are retired. This is referred to as your required beginning date (RBD). Your second RMD must be taken by December 31 of that same year. And each year thereafter, you must take your RMD by December 31.
The distribution can be taken in a lump sum or spread throughout the year as long as the RMD amount is distributed by the due date. Many IRA holders who spend their RMDs prefer to take monthly distributions.
These distributions are generally included in your taxable income. For this reason, many IRA holders choose to take their first distribution by December 31 of the year they turn age 73.
SECURE 2.0 and Your RMDs
The SECURE 2.0 Act of 2022 changed the guidelines for RMDs. Make sure you understand the rules and update your RMD strategy accordingly.
