retirement planning  |  june 1, 2023

5 Important Things You Should Know About RMDs

Once investors turn age 73, they will need to take required minimum distributions (RMDs) from most retirement accounts, whether they need the money or not.


Key Insights

  • For IRAs, you must take your first RMD by April 1 of the year after you turn age 73, regardless of whether or not you are retired. For each year after turning age 73, you must take an RMD by December 31.*

  • If you have multiple individual retirement accounts (IRAs), you must calculate the appropriate RMD for each one. The total amount can be taken from one or more IRAs to satisfy the distribution—as long as the total RMD amount is withdrawn.

  • If you have multiple prior employer-sponsored retirement accounts (such as 401(k)s), you will have to contact your prior employer to calculate the RMD and send you a distribution.

  • Once the RMD is distributed, you don’t have to spend it, but it cannot remain in a tax-deferred account.

Judith Ward, CFP®

Thought Leadership Director

Generally, beginning at age 73, retirement account holders are required to take RMDs from their tax-deferred retirement accounts. These include Traditional, Rollover, SEP, and SIMPLE IRAs and employer-sponsored retirement plans. You must pay federal, and sometimes state, income taxes on the taxable amounts of these distributions.

RMDs aren’t optional. If you don’t take your RMD, or take out too little, you may be faced with an IRS penalty tax of 25% of the amount not distributed.**

Below are five things you should know 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, regardless of whether or not you are retired. This is referred to as your required beginning date (RBD). Your second RMD must be taken by December 31 of that same year. And each year thereafter, you must take your RMD by December 31.

The distribution can be taken in one 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.

These distributions are generally included in your taxable income. For this reason, many IRA holders choose to take their first distribution by December 31 of the year they turn age 73.

2. Which Accounts Require Distributions?

The most commonly affected accounts that require RMDs include:

Accounts Requiring Distributions
IRAs* Employer-Sponsored Retirement Plans*
Traditional 401(k)
Rollover 403(b)
SEP Governmental section 457 deferred compensation

*Roth IRAs don’t require RMDs for the original owner, while Roth plan contributions do. Roth plan contributions won’t require RMDs beginning in 2024.

If you’re working at age 73 and have assets in an employer-sponsored retirement plan at your current job, you may be able to delay taking distributions from that account until April 1 of the year after you retire.

3. How Do I Calculate My RMD?

You need to calculate your RMD each year because it is based on your current age and account balance at the prior year-end.

For IRAs, the account owner is responsible for calculating and taking RMDs. To help with this, you can use IRS Publication 590-B and reference Appendix A: Worksheet for Determining RMDs. Many financial institutions can help you with this process—or have tools to help. (Also, see the “Simplify Your RMDs” sidebar.)

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 one. However, the total distribution amount can be taken from one or more IRAs to satisfy the distribution as long as the total RMD amount is withdrawn. If you have three different IRAs, for example, you can take the entire RMD amount from just one account.

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 age 73 is a great time to review your retirement account structure and consolidate the number of accounts when possible.

5. 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 longer term.

  • Be charitable. Consider a qualified charitable distribution (QCD). Generally, you can distribute up to $100,000 directly from a Traditional IRA 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 college savings plan or add to one that’s already been established.

  • Help fund a Roth IRA. A Roth IRA may be a great way to instill the value of investing for a grandchild with earned income. The contribution limit for a Roth IRA in 2023 is the lesser of $6,500 or your grandchild’s total compensation for the year. If the grandchild is a minor, consider a custodial Roth IRA.

*The SECURE 2.0 Act of 2022 was signed into law in late December and changed the required minimum distribution (RMD) age to 73 for individuals who turned 72 on or after January 1, 2023. The new law also provides that the RMD age will change again to 75 in 2033.
**Penalty tax may be further reduced to 10% if corrected within 2 years.

Important Information

This material has been prepared by T. Rowe Price for general and educational purposes only. This material does not provide fiduciary recommendations concerning investments, nor is it intended to serve as the primary basis for investment decision-making. T. Rowe Price, its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or tax professional regarding any legal or tax issues raised in this material.

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