Eight important things to know about required minimum distributions (RMDs)

Required minimum distributions (RMDs) are mandatory withdrawals from certain tax-deferred retirement accounts such as Traditional, Rollover, SEP, and  SIMPLE IRAs, as well as employer-sponsored retirement plans. Because these accounts were likely funded with pre-tax dollars, you’ll generally owe federal—and sometimes state—income taxes on the taxable portion of each distribution. It’s important to take the full required amount each year, as failing to do so may result in an IRS penalty of up to 25% of the amount not withdrawn.¹

Below are responses to eight commonly asked questions about RMDs:

1. When do I need to take my RMD?

For IRAs, you must take your first RMD by April 1 of the year after you turn age 73. This April 1 deadline is referred to as your required beginning date. If you delay your first RMD until the year after you turn age 73 (by April 1), you must also take your second RMD by December 31 of that same year. For subsequent years, RMDs must be taken by December 31.

Since these distributions are generally included in taxable income, many IRA holders choose to take their first distribution by December 31 of the year they turn age 73. This timing can help spread the taxable income from RMDs over two years, rather than concentrating both the first and second RMDs in a single tax year.

The distribution can be taken in a lump sum or spread throughout the year as long as the RMD amount is distributed by the due date. Many IRA holders who spend their RMDs prefer to take monthly distributions.

Example: First IRA RMD timing

Mary turns 73 in September. She can take her first RMD by December 31 and include it in her taxable income for that year, or delay it until April 1 of the following year. However, her second RMD must be taken by December 31 of that following year, regardless of when she takes the first. If Mary delays her first RMD, she’ll take two distributions in the same calendar year, and both will be included in that year’s taxable income. If she takes her first RMD in the year she turns 73, she’ll spread the taxable income over two tax years instead of one.

Required beginning dates for RMDs from an employer-sponsored retirement plan vary depending on plan rules. You might not be required to take your first RMD until April 1 following the later of the year you reach age 73 or the year you retire from work with that employer. Please note that you must take an RMD for each employer-sponsored plan separately. You may not take the amount from an IRA.

2. Which accounts require distributions?

Some commonly affected retirement accounts that require RMDs:

3. How do I calculate my RMD?

To calculate your RMD, divide your account balance as of December 31 of the prior year by the applicable distribution period from the appropriate IRS life expectancy table. The distribution period is based on the age you turn during the current taxable year.

Because both your age and your account balance can change from year to year, you must recalculate your RMD annually.

For IRAs, you’re ultimately responsible for ensuring your RMD is calculated and taken, but your IRA custodian can typically calculate the amount for you upon request. T. Rowe Price, for example, will calculate your IRA RMD to help simplify the process (See, “Tools to simplify your RMDs” sidebar.) You can also refer to IRS Publication 590-B, including the RMD worksheet in Appendix A, for additional guidance.

The employer is responsible for determining the RMD amount from plans (e.g., 401(k)s) and distributing the RMD.

4. I have multiple IRAs. How many RMDs do I need to take?

If you have multiple IRAs, you must calculate the appropriate RMD for each IRA. However, the total RMD amount can be taken from any one or more IRAs. If you have three IRAs, for example, you can take the entire RMD amount from just one IRA.

The 403(b) plan rules mirror IRA rules in that the total distribution from multiple 403(b) plans can be taken from one or more of the 403(b) accounts.

It’s different with 401(k) accounts. If you have multiple 401(k) accounts from prior jobs, each plan will calculate the RMD and send a distribution.

Before turning 73, consider reviewing your retirement accounts to see whether consolidating them could help simplify the RMD process and make it more seamless.

5. Should I take my RMD in a lump sum or as an installment?

Investors often choose to take their RMD throughout the year on a monthly basis, for example, if using the funds to help pay expenses. Some may prefer taking their RMD all at once, early in the year, to ensure that it’s taken care of, while others prefer to wait until later in the year to give their investments more time to grow tax-deferred. There is no right or wrong answer. The choice is a personal one and depends on what may be best for your household.

6. Do RMDs affect Social Security?

If you are taking RMDs and collecting Social Security benefits, the RMDs will not impact the amount of your benefits—but they could impact how much of your Social Security benefit is taxable. The amount your Social Security is taxed depends on your annual income. RMDs may increase your taxable income. Consider consulting with a financial professional if this is a concern for you.

7. What are the RMD rules for an Inherited IRA?

The rules surrounding Inherited IRA RMDs are a bit complex and vary depending on the beneficiary’s relationship to the original account owner and whether the account owner was taking RMDs.

The SECURE Act of 2019 changed Inherited IRA RMD rules for many non-spouse beneficiaries, subjecting most of them to a 10-year rule.

If you have inherited an IRA, it’s important to consult your financial advisor and/or a tax professional who can tell you which RMD rules apply to you and then help you make the smartest decision based on your situation.

8. What if I don’t need to spend my RMD assets?

Once the RMD is distributed, you don’t have to spend it if you don’t need to, but it cannot remain in the tax-deferred retirement account. If you don’t wish to spend the distribution, you can:

• Reinvest the money in a taxable general investing account, add it to your rainy day fund, or invest for the future.
• Be charitable. Consider a qualified charitable distribution (QCD). Generally, you can make a nontaxable distribution from Traditional IRAs to qualified charities each year. QCDs can count toward your RMD and won’t be included in your taxable income.
• Invest in your grandchild’s future by using the funds to contribute to a 529 savings plan or add to one that has already been established.
• Help your grandchild with earned income fund a Roth IRA. If your grandchild is a minor with earned income, consider a custodial Roth IRA.

Tools to simplify your RMDs.

It’s easy to set up and manage your RMDs online with our digital RMD tools.

As a valued client, once you reach RMD age for your eligible T. Rowe Price IRAs, you can access these helpful tools by logging in to your online account:

Enhanced RMD dashboard:
Find all the information you need to stay informed about your RMDs, including your total and remaining RMD amount for the year—helping you see if you’re on or off track at a glance.

Auto-RMD tool:
Automate your RMDs from your Traditional and Rollover IRAs. Easily customize the dates, frequency, and details of your distributions.

Learn more about RMDs and understand your obligations at troweprice.com/RMD.