Required Distributions

THANKS TO 2022’S TAX law, the typical starting age for required minimum distributions, or RMDs, is age 73 beginning in 2023. In 2033, the RMD starting age will rise again, to age 75.

Any exceptions to RMDs? There are three. First, if you’re still working at age 73, you don’t have to take distributions from your employer’s 401(k) or similar plan until you retire, unless you own 5% or more of the company, in which case distributions must begin at age 73. Second, you aren’t required to take RMDs from so-called nonqualified variable annuities. These are annuities bought with after-tax dollars, as opposed to annuities bought through an employer’s plan or in an IRA. Third, you never have to take distributions from a Roth IRA, though your beneficiaries—other than your spouse—will need to take RMDs. Be warned: RMDs must be taken from a Roth 401(k), but this requirement disappears in 2024, another change stemming from 2022’s tax law.

If none of these three exceptions applies, you have to take distributions starting in the year you turn age 73. You can put off taking your first distribution until April 1 of the following year. That, however, might not be a smart move: You’ll have to take your second distribution before the end of the year, and the two distributions combined will likely be taxed more heavily than if you had taken them in separate years.

To calculate your RMD for the current year, you divide your retirement account balance as of the prior Dec. 31 by a life expectancy factor. You use one of three different IRS life expectancy tables, depending on your financial situation. For instance, if your account balance was $500,000 as of year-end and you are age 75, the distribution period is 24.6 years if you’re using the Uniform Lifetime Table. To figure out how much you need to withdraw, you would divide $500,000 by 24.6, giving you a minimum distribution of $20,325. The IRS introduced new RMD tables in 2022, which reflect Americans’ growing life expectancy. That means the required distributions at each age shrank slightly.

You can withdraw more than the amount specified by the IRS—but you should be careful never to withdraw less. In 2022, the penalty for not taking a distribution is an amount equal to 50% of the sum that should have been withdrawn, but wasn’t. In 2023 and subsequent years, that penalty is reduced to 25% and could be as low as 10% if you rectify the mistake within two years. Often, mutual fund companies and brokerage firms will calculate your RMD for you. There are also online calculators available, such as those offered at Fidelity.com and TRowePrice.com.

In December 2015, Congress voted to make so-called qualified charitable distributions a permanent part of the tax code. This provision allows those who are in their 70s or older to contribute up to $100,000 directly from their IRA to a qualified charity and count the contribution toward their required distribution. The charitable gift isn’t tax-deductible—but the IRA distribution also isn’t included in your taxable income. You can learn more about qualified charitable distributions toward the end of the chapter on giving.

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