What Is an RMD? Understanding Required Minimum Distributions for Retirement Accounts

A Required Minimum Distribution (RMD) is the minimum amount that you must withdraw annually from certain tax-deferred retirement accounts after reaching a specific age. RMDs are required by the IRS to ensure individuals start withdrawing funds from retirement accounts and paying taxes on them during their lifetime.

This article covers everything you need to know about RMDs, how they are calculated, and whether annuities are subject to RMD rules.

What is an RMD?

The IRS requires individuals to begin taking withdrawals from their retirement accounts once they reach age 72 (or age 73 if they reach 72 after Dec. 31, 2022). These mandatory withdrawals are called Required Minimum Distributions (RMDs). If you do not take your RMDs as required, you may face stiff penalties.

RMDs apply to the following types of retirement accounts:

• Traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• 401(k) plans
• 403(b) plans
• 457(b) plans
• Profit-sharing plans
• Other defined contribution plans
• Roth IRA beneficiaries

Are Annuities Subject to RMDs?

Yes, certain types of annuities are subject to Required Minimum Distributions (RMDs). Specifically, annuities held within qualified retirement accounts like Traditional IRAs, SEP IRAs, SIMPLE IRAs, and 401(k) or 403(b) plans must adhere to RMD rules. Here’s how it works:

• Qualified Annuities: If the annuity is held within a tax-advantaged retirement account, it is subject to RMDs. The RMD will be calculated based on the account’s balance as of the previous year, and annuity payments may count toward satisfying the RMD.
• Non-Qualified Annuities: Annuities purchased with after-tax dollars and not held within a qualified retirement plan are not subject to RMDs. However, distributions from non-qualified annuities may still be taxable, particularly on the earnings portion.

Calculating Your RMD

To calculate your RMD, divide the account balance as of the end of the previous calendar year by a distribution period from the IRS’s "Uniform Lifetime Table." There are special rules if your spouse is the sole beneficiary and is more than 10 years younger than you. The IRS provides several tools and worksheets to help calculate the RMD amount:

• RMD Worksheets
• IRS publication 590-B for more information on distribution tables.

When Do You Have to Take Your First RMD?

Your first RMD must be taken by April 1 of the year following the calendar year in which you turn 72 (or 73, if you turn 72 after Dec. 31, 2022). For each subsequent year, RMDs must be taken by December 31.

What Happens if You Don’t Take Your RMD?

If you don’t take your RMD, or if the amount you withdraw is less than the required amount, the IRS may impose a 50% excise tax on the portion of the RMD that was not distributed. To report this excise tax, you may need to file Form 5329 with your tax return.

RMDs for Beneficiaries After the Account Owner’s Death

For beneficiaries, RMD rules depend on the type of beneficiary and the account. See the IRS’s guidance on Retirement Topics – Beneficiary for more information on how RMDs apply after the account owner’s death.