Salary FYI

Required Minimum Distribution (RMD)

Investing

The minimum amount that US retirement account holders must withdraw annually from tax-deferred accounts starting at age 73, calculated based on account balance and life expectancy.

## Required Minimum Distribution (RMD)

RMDs are mandatory annual withdrawals from tax-deferred retirement accounts (Traditional IRA, 401(k), 403(b), 457(b)). The IRS requires these distributions to ensure that tax-deferred savings are eventually taxed as income.

### RMD Age Rules (SECURE 2.0 Act)

| Birth Year | RMD Begins At |
|-----------|---------------|
| 1951-1959 | Age 73 |
| 1960+ | Age 75 |

### Calculation

RMD = Account balance (Dec 31 of prior year) / Life expectancy factor (IRS Uniform Lifetime Table).

At age 73 with a $1,000,000 balance, the factor is 26.5:
RMD = $1,000,000 / 26.5 = $37,736.

### Accounts Subject to RMDs

| Account | RMDs Required? |
|---------|----------------|
| Traditional IRA | Yes |
| Traditional 401(k) | Yes (unless still working) |
| Roth IRA | No (during owner's lifetime) |
| Roth 401(k) | No (as of 2024, SECURE 2.0) |
| HSA | No |

### Penalties

Failure to take RMDs results in a 25% excise tax on the shortfall (reduced from 50% by SECURE 2.0). If corrected within 2 years, the penalty drops to 10%.

### Planning Strategy

Roth conversions before age 73 can reduce future RMDs by moving money from Traditional to Roth accounts. This is especially valuable during lower-income years.