Required Minimum Distribution(RMD) By Age

Table Of Content

• What is RMD?
• Age for RMD
• Types of Retirement Plans That Have RMDs
• Calculating Required Minimum Distributions (RMDs)
• IRA Required Minimum Distribution Table
• The RMD calculation is a 3-step process
• Required Minimum Distribution (RMD)
• RMDs and Inherited IRAs: Special Case
• FAQs

What is RMD?

A required minimum distribution (RMD) is the minimum amount of money you must withdraw from your tax-advantaged retirement accounts each year once you turn 72 years of age.

Age for RMD

Earlier, the RMD age was 70½ years. But, the retirement age for withdrawing RMDs changed in 2020. You now have to withdraw RMD by April 1 following the year you reach age 72.

On March 27, 2020, the CARES Act, signed by President Donald Trump, suspended RMDs from retirement accounts for 2020. However, the exemption is not extended in 2021. So, people who are already 72 or above will have to start or resume taking RMDs by year-end or get penalized.

By making it mandatory for you to begin taking RMDs after you reach 72, the government ensures that it receives the tax revenue it’s been waiting for and makes sure that taxpayers aren’t accumulating tax-free wealth indefinitely.

Types of Retirement Plans That Have RMDs

• Traditional IRA
• SIMPLE IRA
• SEP IRA
• 401(k) traditional & Roth)
• 457(b) (traditional & Roth)
• 403(b) (traditional & Roth)
• Profit sharing plans

Calculating RMDs –  Required Minimum Distributions

The Internal Revenue Service (IRS) has a worksheet prepared for taxpayers to calculate the RMD amount. Usually, the plan administrator or the account custodian calculates the RMD amount and report it to the IRS.

To calculate your RMD, all you have to do is divide your tax-deferred retirement account balance as of December 31 of last year by your life expectancy factor from the IRS Uniform Lifetime Table.

IRA Required Minimum Distribution Table

Age of retiree	Distribution period (in years)
72	27.4
73	26.5
74	25.5
75	24.6
76	23.7
77	22.9
78	22.0
79	21.1
80	20.2
81	19.4
82	18.5
83	17.7
84	16.8
85	16.0
86	15.2
87	14.4
88	13.7
89	12.9
90	12.2
91	11.5
92	10.8
93	10.1
94	9.5
95	8.9
96	8.4
97	7.8
98	7.3
99	6.8
100	6.4
101	6.0
102	5.6
103	5.2
104	4.9
105	4.6
106	4.3
107	4.1
108	3.9
109	3.7
110	3.5
111	3.4
112	3.3
113	3.1
114	3.0
115	2.9
116	2.8
117	2.7
118	2.5
119	2.3
120 and older	2.0

How To Calculate RMD

Required Minimum Distributions (RMDs) are calculated based on an individual’s age and the balance of their retirement account, typically using IRS-approved life expectancy tables to determine the annual distribution amount.

The RMD calculation is a 3-step process:

1. Note down the balance of your account as of December 31 of the previous year.
2. Find your life expectancy factor on the IRS Uniform Lifetime Table. Look for the factor that is corresponding to your age on the birthday of the current year. This factor number for most people is between 27.4 and 1.9. As your age increases, the factor number decreases.
3. To find the RMD, divide your account balance by the factor number.

Required Minimum Distribution (RMD): An Example

Steve is 74 yrs old. It’s nearing April, and on October 1, Steve will be 75. His IRA is worth $275,000. As of December 31 of the previous year, his account balance was $225,000. The distribution factor from the relevant IRS table for age 75 is 22.9. So, let’s calculate Steve’s RMD.

RMD = $225,000 ÷ 22.9 = $9835.32

So, Steve needs to withdraw at least $9835.32.

If Steve has multiple IRAs, he must calculate RMD separately for each account. Depending on the types of accounts Steve has, he may have to take RMDs separately from each account instead of taking all RMDs from one account.

The IRS has different calculation tables for different situations. For example, there will be a different calculation table if the account holder’s spouse is the account’s only beneficiary and is more than 10 years younger than the account holder. For married couples with age differences, the IRS has a separate table called the Joint Life Expectancy Table. In this table, your life expectancy factor is based on both spouse’s ages.

For example, let’s say Janet is 75 and her husband Brad is age 64. Janet’s account balance was $100,000 as of December 31 of last year. According to the IRS Joint Life Expectancy Table, their factor is 23.6.

When the account balance is divided by the life expectancy factor, Janet’s RMD is $4,237.29.

RMDs and Inherited IRAs: Special Case

If you inherit an IRA, you may also be subject to RMDs. After the account owner’s death, the nature of the relationship you had with the deceased will decide the type of RMD you’ll face. For example, RMD rules may vary depending on whether you are a minor child, surviving spouse, or a disabled individual.

If you inherit an IRA from an account holder;

• Who died prior to January 1, 2020, you’ll use your IRS Single Life Table to calculate your RMD
• Who died after December 31, 2019, you’ll need to follow the RMD rules established by the SECURE Act, which clearly distinguishes between designated beneficiaries, eligible designated beneficiaries, and non-designated beneficiaries. Depending on which category you belong to, the calculation and timeframe of your RMD may vary.

FAQs related to Required Minimum Distributions

Who calculates the amount of the RMD?

Usually, the IRA custodian or retirement plan administrator calculates the RMD and report it to the IRS. But the responsibility lies with the retirement account holder.

What happens if a person does not take an RMD by the required deadline?

If an account owner does not withdraw the RMD, fails to withdraw by the required deadline or doesn’t withdraw the full RMD amount, the RMD amount that’s not withdrawn is taxed at 50%.

Can an account owner withdraw more than the RMD?

Yes. The account holder can take more than the RMD without penalty. However, the withdrawal amount will be taxed the same way the RMD is taxed.

Can a distribution in excess of the RMD for one year be applied to the RMD for a future year?

No. An excess of the RMD for one year cannot be applied to a future year.

Can the penalty for not taking the full RMD to be waived?

Yes. The penalty can be waived if the account holder is able to establish that the withdrawal shortfall was due to a reasonable error and that steps were taken to rectify the error.

Are Roth IRAs subject to RMDs?

Roth IRAs are not subject to RMDs. If you don’t need the money, you can let the money in the account grow untouched and tax-free.

Can RMD amounts be rolled over into another tax-deferred account?

The IRS rules prohibit investing your RMD into another tax-advantaged retirement account. However, you can consider converting the remaining portion of your traditional IRA assets to a Roth IRA, but this may mean paying more taxes.

At What Age RMD Stop?

RMDs (Required Minimum Distributions) typically stop at age 72, based on current IRS regulations. This age was increased from 70½ through the Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in 2019.