Required Minimum Distribution (RMD)

Tax-deferred retirement accounts, such as traditional IRAs and 401(k) plans, let money grow without tax for many years. RMDs ensure that tax is eventually collected, by requiring withdrawals to begin at a certain age. Under current law, that age is 73, rising to 75 for people born in 1960 or later.

The amount is usually calculated by dividing the account balance at the end of the previous year by a life expectancy figure from tables published by the tax authority. For example, an account worth 500,000 divided by a factor of 26.5 gives an RMD of about 18,900.

Withdrawals are taxed as ordinary income. Missing an RMD triggers a penalty on the amount that should have been withdrawn, although the penalty is reduced if the shortfall is corrected quickly.

Roth IRAs do not require withdrawals during the original owner's lifetime, and since 2024 the same applies to Roth accounts in employer plans. Inherited accounts follow separate rules, which often require the account to be emptied within ten years.