RMD Calculator

Once an individual reaches the age of 73, the IRS requires them to withdraw a minimum amount from their retirement accounts each year. This mandatory withdrawal is known as the Required Minimum Distribution (RMD). The RMD amount is determined based on a combination of the account balance and life expectancy, following the guidelines outlined in IRS Publication 590-B. Since these regulations are specific to the United States, the RMD calculator is designed exclusively for U.S. residents.

A Required Minimum Distribution (RMD) represents the lowest amount that must be withdrawn annually from certain tax-deferred retirement accounts. The specific withdrawal amount is calculated based on factors such as the account balance and the life expectancy figures provided by the IRS. Taxes are applicable to these distributions, as the IRS mandates them to ensure tax-deferred funds are eventually taxed. It is important to note that RMDs set only the minimum required withdrawal, meaning retirees have the flexibility to withdraw more than the mandatory amount if necessary.

The timeline for taking RMDs is crucial for retirees. The first RMD must be taken by April 1 of the year following the calendar year in which the individual turns 73. The SECURE Act 2.0, which was enacted in December 2022, increased the required age from 72 to 73 and further stipulated that this age will rise to 75 in 2033. Prior to 2019, the RMD age was 70.5, which was then increased to 72 following the passage of the original SECURE Act in 2019.

Although RMDs are technically due by December 31 of each calendar year, the IRS grants first-time recipients the option to delay their initial withdrawal until April 1 of the following year. However, postponing the first RMD results in two distributions being taken within the same year, as the second RMD must still be completed by December 31. This could lead to increased taxable income and the possibility of moving into a higher tax bracket. For every subsequent year, the entire RMD must be withdrawn by December 31, giving retirees the flexibility to determine the timing and structure of their withdrawals, provided they meet the full required amount by the deadline.

For instance, an individual turning 73 in 2025 has the choice to take their first RMD within the same year or delay it until April 1, 2026. Regardless of this decision, the second RMD must be withdrawn by December 31, 2026, and all future RMDs must be taken annually by the end of each calendar year.

Delaying RMD deadlines is possible under certain conditions. The IRS permits retirees who are still employed by the company sponsoring their retirement plan after turning 73 to postpone their first withdrawal until they officially retire. This exemption applies only if the individual owns less than 5% of the company in question. While this exception allows for a delay in RMDs from the employer-sponsored plan, it does not extend to other retirement accounts such as IRAs, from which distributions must still be taken. Once the individual retires, they must begin RMDs from the employer-sponsored plan as well.

The process of calculating an RMD follows a structured methodology based on IRS regulations. The first step involves determining the retirement account balance as of December 31 of the previous year. The next step requires locating the distribution period, also known as the life expectancy factor, which corresponds to the individual’s age in the appropriate IRS life expectancy table. Finally, dividing the prior year-end balance by the corresponding distribution period provides the RMD amount for that year.

The specific IRS life expectancy table used depends on the individual’s marital status and the age of their spouse. If an individual is married and their spouse is less than ten years younger, the Uniform Lifetime Table is used for calculations. However, if the spouse is more than ten years younger and is the sole beneficiary, the Joint Life and Last Survivor Expectancy Table applies. Although this process allows for manual RMD calculations, an RMD calculator simplifies the task by automating the necessary computations based on user inputs.

RMDs are applicable to most tax-advantaged and defined contribution retirement accounts, including traditional IRAs, SEP IRAs, SIMPLE IRAs, rollover IRAs, traditional 401(k) plans, most 403(b) and 457(b) plans, qualified annuities held in an IRA, profit-sharing plans, and small business retirement accounts. However, Roth IRAs are an exception, as they generally do not require RMDs during the original owner’s lifetime since contributions are made with after-tax dollars. Exceptions exist for inherited Roth IRAs, which are subject to different distribution rules based on the relationship between the inheritor and the original account holder.

For individuals with multiple retirement accounts, RMD calculations must be performed separately for each account. However, depending on the account type, distribution options vary. Traditional IRAs require separate RMD calculations but allow for withdrawals to be combined and taken from one or multiple IRA accounts. Conversely, 401(k) accounts require separate calculations and distributions for each account. The same rule applies to inherited retirement accounts, as those inherited from different individuals must be treated separately, though multiple accounts inherited from the same person may be consolidated.

Failing to take an RMD results in financial penalties imposed by the IRS. If an individual does not withdraw the required amount, they face an excise tax of 25% on the undistributed portion. If the shortfall is corrected within a two-year correction window, the penalty may be reduced to 10%. For example, if an individual falls $1,000 short of their required withdrawal, they would owe the IRS $250 as a penalty.

Since RMDs are designed to ensure deferred tax obligations are eventually fulfilled, they are considered taxable income. Withdrawals are taxed as ordinary income at both federal and state levels, meaning they contribute to the individual’s total taxable earnings for that year. This can have implications on tax brackets, especially for those who are still working or receiving income from other sources.

Brokerage firms, custodians, and plan administrators are required by the IRS to offer RMD calculations for account holders. However, the IRS ultimately holds taxpayers responsible for ensuring correct calculations and withdrawals. If an error occurs on the part of a brokerage or administrator, the taxpayer may still be liable for any penalties, though waivers can be requested in cases of reasonable error.

When an individual inherits a retirement account subject to RMDs, the distribution rules vary based on the relationship to the original account holder. The SECURE Act of 2019 introduced the ten-year distribution rule, which requires non-spouse beneficiaries to fully withdraw inherited IRA funds within ten years of the original owner’s passing. However, eligible designated beneficiaries such as surviving spouses, minor children, disabled individuals, and those less than ten years younger than the account owner may be eligible for exceptions that allow for more flexible withdrawals.

For spouses inheriting a traditional IRA, options include rolling the funds into their own IRA or transferring them into an Inherited IRA, each with its own distribution rules. If the deceased spouse had not yet begun RMDs, the surviving spouse can delay RMDs until the year their late spouse would have turned 73. For Roth IRAs, spouses can assume the account as their own, which allows them to avoid RMDs entirely.

Non-spouse beneficiaries of Roth IRAs must follow the ten-year rule, requiring full distribution within a decade. Inherited 401(k) accounts have even more complex regulations, with varying requirements based on employer policies, state laws, and estate planning strategies. Consulting a financial advisor may be beneficial for handling inherited 401(k)s.

Minimizing the tax burden associated with RMDs is possible through strategic planning. One method is transitioning funds to a Roth IRA, which removes RMD obligations altogether. Another approach is utilizing qualified charitable distributions (QCDs), which allow retirees to donate their RMD amount to charity, satisfying IRS requirements while reducing taxable income. Understanding these options helps retirees optimize their distributions while minimizing potential tax liabilities.