Personal Finance

3 Steps to Follow Before Taking Your RMD from Your IRA This Year

Ian Cooper

Published: January 7, 2025 11:11 am

At the age of 73, you have required minimum distributions (RMD), which you should discuss with your financial advisor.

As I’m sure you know, there are minimum amounts you must pull from your retirement accounts every year. “Participants in a workplace retirement plan (for example, 401(k) or profit-sharing plan) can delay taking their RMDs until the year they retire unless they’re a 5% owner of the business sponsoring the plan,” says the Internal Revenue Service.

Key Points About This Article

• At the age of 73, minimum distributions (RMD) are required.
• If you turned 73 in 2024, your first RMD is due by April 1, 2025 based on your account balance on December 31, 2023, according to the IRS.
• The IRS will use a formula that includes your total account balances, your age, your life expectancy, and your beneficiary life expectancies to calculate RMD.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

If you’re at the age or nearing the age when you must pull RMD, there are key rules to follow.

No. 1 – If You Turned 73 in 2024, Your First RMD is Due April 1, 2025

If you turned 73 in 2024, your first RMD is due by April 1, 2025, based on your account balance on December 31, 2023, according to the IRS. Your second RMD is due by December 31, 2025, based on your account balance on December 31, 2024.

It’s essential to start your RMD on time to avoid potential penalties. Unfortunately, the always-friendly IRS can impose significant taxes if you fail to take your RMD as required.

“The current penalty for missing an RMD is 25% of the amount you should have withdrawn. While this is still a substantial penalty, it’s not as severe as it used to be,” says Daytonestateplanning.com. “The IRS also states that if you correct the mistake and take the missed RMD before they discover the error, you may be able to reduce the penalty to 10%. Regardless of the specific penalty amount, it’s clear that missing an RMD can be very costly.”

No. 2 – Be sure to calculate your required minimum distribution

The IRS will use a formula that includes your total account balances, your age, your life expectancy, and your beneficiary life expectancies. The agency then divides the total balance by your life expectancy factor, which is the age to which you’re expected to live from your current age. For an example of how that works, here’s a link to the IRS Uniform Lifetime Table.

Even more information on RMD can be found on this IRS page.

If you’d rather avoid the IRS page, here’s how the calculation works. Let’s say you’re 73 years old. You would have a Life Expectancy Factor of 26.5. If you have an account balance of $250,000 as of December 31 of last year, you would divide $250,000 by 26.5, which would give you your RMD of $9,433.96.

If You’re 120, Your Life Expectancy Factor is 2.0

At the age of 12, your Life Expectancy Factor is 2. With a balance of $250,000, your RMD would be $125,000. If we could all be lucky enough to live this long…

According to Fidelity.com, “If you own one IRA or 403(b), you’ll take your distribution from that account or contract. However, if you have numerous IRAs or 403(b)s, you need to know what the RMD is for each one, and then add them up, to get the final number. While you can withdraw your RMDs from multiple IRA accounts or 403(b)s, you can also withdraw the total amount from just one account or contract—for example, the one with the highest balance.”

“The same isn’t true for qualified retirement plans, or plans sponsored by employers, such as 401(k)s or 457(b)s. You must take your RMD separately for each account. This means, if you have five different 401(k)s, you’d need to take your RMD from each, and you’d wind up with five different checks,” they added.

Also, if you have a spouse who is 10 years younger than you, and is listed as a 100% beneficiary, you need to calculate your RMD using a Joint Life Expectancy Table. The calculation includes your age and your spouse’s age, which can result in longer life expectancy, which can also reduce your required RMD. It’s another way for the IRS to make your life even more fun.

No. 3 – Determine How You Want Your Money  

Before you start taking money from your RMD discuss options with a financial advisor first.

With RMDs, you can take a one-time, lump-sum withdrawal, or a series of withdrawals. You can also schedule automatic withdrawals. As noted by Schwab.com, “The total amount of your RMD is taxed as ordinary income at your personal federal income tax rate. State taxes may also apply. If you’ve made a nondeductible IRA contribution, it will not be taxed.”

Again, it’s best to check with a financial advisor before doing anything with your RMD.