Jeffrey R. Brown, JamesPoterba, David P. Richardson Do Required Minimum Distribution Rules Matter? The Effect of the 2009 Holiday on Retirement Plan Distributions ; Journal of Public Economics ; July 2017
Last updated: Jun 05, 2023RMD calculator is a tool that helps you find the minimum amount you must withdraw from your individual retirement account (IRA) each year when you turn 72 years. Money invested in your retirement accounts grows tax-free for decades. The required minimum distribution (RMD) is designed to prevent these investments from growing untouched indefinitely. By requiring you to make these compulsory withdrawals, the government can finally collect its tax revenue you've been putting off.
The only exception to the RMD is the Roth IRA, which is funded with after-tax dollars. You don't have to take an RMD for 2020 because of the CARES Act , but you may still use this tool to calculate any further RMDs with the estimated account balance. Check out how the CARES Act impacted unemployment benefit and the stimulus check calculator.
You can learn more about the rules governing retirement plans with RMDs, how to calculate your RMD, the CARES act RMD waiver, and how RMDs impact your taxes if you keep reading.
A required minimum distribution (RMD) is the minimum amount you must withdraw from your retirement account each year when you turn 72 years. You are allowed to withdraw more. Without the RMD, money in your retirement accounts would continue to grow tax-free indefinitely, but the government wants a piece of it. Consider RMD rules as a way the Internal Revenue Service (IRS) forces you to eat your cake, or they'll have it. The government receives tax revenue from deposits into the retirement accounts that were not taxed.
RMD rules apply to tax-deferred retirement accounts such as SIMPLE IRA, SEP IRA, Traditional IRA, and most 401(k) and 403(b) retirement plans. Roth IRAs are exempt from RMD rules. You may choose to withdraw your RMD for the year at once or in small installments, but you must take it by the deadline of December 31 each year. There is no preferred strategy to approach the RMD withdrawal since the tax you'll pay is the same. However, if you miss the RMD deadline, the IRS will charge you a 50% penalty on the amount NOT taken. Please check out our 401k calculator, IRA calculator and Roth IRA calculator.
For example, if your RMD was $12,000 , but you only withdrew $4,000 , your 50% penalty on the $12,000 - $4,000 = $8,000 balance you didn't withdraw, would be $8,000 * 50% = $4,000 .
The IRS only allows you to delay taking your first RMD until April 1 of the year after you turn 72. If you choose to wait, you'll have to take your first and second RMD in the same tax year, meaning you'd pay more taxes that year. You can also delay taking RMDs if you are still working at age 72 (lucky you?), and you don't own up to 5% of the business. In that case, you can delay taking RMDs from your workplace retirement plan until April 1 of the year after you retire.
The Coronavirus Aid, Relief, And Economic Security (CARES) Act temporarily waives required minimum distributions (RMDs) for all types of retirement plans in 2020. The Act was signed to give Americans time to recover from the economic downturns of the COVID-19 pandemic.
Except for an Inherited IRA, you can calculate your RMD by dividing your tax-deferred retirement account balance as of December 31 of the previous year by your life expectancy factor.
The IRS provides the worksheet for the life expectancy factor. It is wise always to confirm that you are using the latest information from the IRS website .
There are two tables provided for the Life expectancy factor:
The RMD formula is:
RMD = Account balance as of December 31 / Life expectancy factor
Example: How to calculate RMD when one spouse is more than ten years younger and is the IRA's sole beneficiary.
Farouk turned 72 last year, and his wife is 60. She is the sole beneficiary of his IRA.
Therefore, Farouk must withdraw at least $10,000 per annum to satisfy RMD rules.
If Farouk happens to have more than one IRA, e.g., a traditional IRA and a 401(k), he must calculate the RMD separately for each account and take RMDs individually from each account too.
Roth IRAs: There are no RMDs if you are the Roth account's original owner. But if you own other IRAs as well, you will need to withdraw your RMDs on them. Withdrawals from your Roth would not fulfill the RMD rules.
Inherited IRA RMD: If you inherit an IRA (including Roth IRAs), you are subject to RMD rules and may be required to begin taking RMDs by a specific date.
The RMD rules are summarized as follows:
The required minimum distributions tables below summarize the life expectancy factors provided by the IRS :
