If you turned 73 in 2024 and are the owner of a retirement account, you will likely need to make a minimum withdrawal by April 1 to avoid penalties.

What is an RMD?

A required minimum distribution (RMD) is the minimum amount that must be withdrawn annually from certain retirement plans beginning when the account holder turns 73.

Retirement plans to which RMD rules apply:

• All employer-sponsored retirement plans including profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans
• IRA-based plans such as traditional IRAs, Simplified Employee Pension (SEP) IRAs, and SIMPLE IRAs
• Inherited Roth IRAs and Designated Roth accounts after the death of the account holder

When are you required to start taking RMDs?

Owners of IRA-based plans must begin taking RMDs for the year they turn 73, even if they are not yet retired.

Account holders who turned 73 during the year 2024 must take their first RMD by April 1, 2025, and the second RMD by December 31, 2025.

RMDs can be delayed until retirement for holders of workplace retirement plans, unless the account holder is a 5% owner of the business sponsoring the plan.

What happens if required individuals fail to take an RMD?

If a person required to take an RMD fails to withdraw the full amount within the designated time period, that person may be subject to a 25% excise tax on the amount of the RMD. If corrective actions are taken within two years, that amount may be reduced to 10%. The penalty may be waived if the individual can prove the failure to take an RMD was due to “reasonable error” and that the proper corrective steps are being taken.

How are RMDs calculated?

The amount of the RMD is calculated using the balance of the retirement account on December 31 of the previous year divided by a life expectancy factor. The IRS tables listing life expectancy factors for different ages can be found on the IRS website. Most individuals will use the “Uniform Lifetime Table” to calculate their RMD.

Example: A 73-year-old individual has 100,000 in their retirement account (as of December 31, 2023, the previous year). Based on the Uniform Lifetime Table, the life expectancy factor for an individual who is 73 years old is 26.5. To calculate the RMD, you must divide 100,000 by 26.5. The RMD for this person would be $3,773.58.

Can you withdraw more than the RMD amount annually?

Yes, you can withdraw more than the minimum distribution amount.

Are RMDs taxable?

Yes, RMDs are subject to income taxes when they are withdrawn since contributions to the retirement accounts are made with pre-tax dollars. However, in New York State, the first $20,000 of retirement income for those 59.5 or older is tax-exempt. Spouses are eligible for this exclusion as well.

Need more information?

More answers to common RMD-related questions can be found on the IRS’s Retirement Plan and IRA Required Minimum Distributions FAQ page.

To avoid potential penalties, it is advisable to work with an accountant knowledgeable about RMD requirements, deadlines, and calculations. RBT CPAs’ accounting experts are here to guide you through the process of taking the required minimum distributions when the time comes. Give us a call today to find out how RBT CPAs can be of service to you.