• Skip to primary navigation
  • Skip to main content
Good Financial Cents®
Content is based on in-depth research & analysis. Opinions are our own. We may earn a commission when you click or make a purchase from links on our site. Learn more.
  • Make Money
    • Get Money Now
      • Ultimate Guide to Making Money
      • Need Money Now
      • Get Free Money Fast
      • Make Money Fast
      • Make $1K Per Month
      • Make $100 Per Day
    • Control Your Destiny
      • Self Employed Jobs
      • Make Money from Home
      • Hobbies That Make Money
      • How to Become a Freelance Writer
      • Small Business Ideas to Start
      • How to Become an Independent Contractor
      • Best Online Jobs
    • Passive Income
      • Passive Income Ideas
      • Multiple Streams of Income
      • Extra Income
      • Residual Income Ideas
      • Learn to Sell e-Books
      • Make Money on Facebook
      • Make Money on Tiktok
      • Best Online Survey Sites to Make Money
    • Explore More
      • Best Side Hustle Ideas
      • Make Money for Teens
      • Best Online Colleges
      • Best Jobs No College Degree
      • Become a Millionaire
      • Careers for the Future
  • Manage Money
    • Best Of
      • Budgeting Tools
      • Personal Finance Software
      • Best Cashback Cards
    • Company Reviews
      • Personal Capital vs Mint
      • Personal Capital Review
      • SmartAsset Review
    • Guides
      • Buy or Lease a Car
      • What is Liquid Net Worth?
      • Setting Financial Goals
      • How to Budget
      • Ways to Save Money
    • Explore More
      • How Much Car Can I Afford?
      • Best Auto Refinance Companies
  • Invest
    • Best Of
      • Best Short and Long-Term Investments
      • Best Low Risk Investments
      • Best Online Stock Brokers
      • Best Crypto Exchanges
      • Best Short Term Investments
      • Best Long Term Investments
      • Best Trading Platforms
      • Best Investment Apps
    • Company Reviews
      • Lending Club
      • Robinhood
      • M1 Finance
      • Ally
      • TD Ameritrade
      • Fundrise
      • Betterment
      • Etrade
      • Wealthfront
    • Guides
      • Investing for Beginners
      • Investing Small Amounts of Money
      • Investing in Real Estate
      • No Money Down Real Estate
      • Bonds vs Stocks
      • Peer to Peer Lending
      • Best Hedges Against Inflation
      • Safe Bitcoin Investing in 2023
    • Explore More
      • Bitcoin vs. Real Estate
      • Betterment vs Wealthfront
      • Investing for College Students
      • Stock Market Alternatives
    • By Investment Amount
      • How to Invest $100
      • How to Invest $1K
      • How to Invest $2k-$3k
      • How to Invest $5K
      • How to Invest $10K
      • How to Invest $15k
      • How to Invest $20K
      • How to Invest $30k
      • How to Invest $50K
      • How to Invest $100K
      • How to Invest $200K
      • How to Invest $500K
      • How to Invest $1M
  • Taxes
    • Best Of
      • Best Tax Relief Companies
      • Best Tax Software
    • Guides
      • Federal Income Tax Guide 2023
      • Taxes and Cryptocurrency
      • How to Do Your Own Taxes
      • How to Invest Your Tax Refund
      • Hiring a Professional Tax Preparer
      • Tax Tips for Freelancers
    • Company Reviews
      • TurboTax Review
      • H&R Block Review
      • Taxslayer
      • Tax Act
  • Insurance
    • Best Of
      • Best Life Insurance
      • Best Home Insurance
      • Best Auto Insurance
      • Cheap Term Life Insurance
      • Car Insurance For Young Adults
    • Guides
      • Term vs Whole Life
      • Different Types of Car Insurance
      • Average Cost of Car Insurance
    • Explore More
      • Life Insurance Over 50
      • Life Insurance Over 80
      • $1 Million Life Insurance
      • $2 Million Life Insurance
      • $3 Million Life Insurance
    • Company Reviews
      • Banner Life Insurance
      • Ladder Life Insurance
      • Health IQ
      • Haven Life
      • Policygenius
      • State Farm Auto Insurance Review
  • Retirement
    • Roth IRA
      • Best Places to Open a Roth IRA
      • Best Investments for Roth IRA
      • 7 Roth IRA Secrets
      • Roth IRA Conversion Guide
      • Roth IRA Rules
      • Roth IRA vs Roth 401k
      • Are Roth IRA Contributions Tax Deductible?
    • 401(k)
      • 401(k) Limits
      • 401(k) to Roth Rollover
      • Is 401(k) Enough for Retirement?
      • Maxed Out 401(k): What's next?
    • Traditional IRA
      • Traditional IRA Rules and Limits
      • Traditional IRA vs. 401(k)
      • Simple IRA Rules
      • SEP IRA Rules
      • How Much Do You Need to Start an IRA?
    • Explore More
      • SEP IRA vs. Roth IRA
      • 457 Plan for Successful Retirement
      • 401a Rollover Rules
      • How to Retire at 50
      • How to Retire at 55
  • Banking
    • Best Of
      • Best National Banks
      • Best High-Yield Savings Accounts
      • Best Checking Accounts
      • Best Savings Accounts
      • Best CD Rates
      • Best Money Market Accounts
    • Company Reviews
      • BBVA
      • Synchrony
      • Wells Fargo
    • Explore More
      • 9 Banking Alternatives for 2023
      • What is a Credit Union?
  • Home
    • Best Of
      • Best Mortgage Lenders
      • Best Mortgage Refinance Companies
      • Best Home Warranties
      • Best Homeowners Insurance
      • Best VA Loans
      • Best Mortgage Rates
      • Best Moving Companies
      • Best Home Security
    • Guides
      • Home Buying Checklist
      • Online Home Appraisal
      • How Much House Can I Afford?
      • First-time Homebuyer Programs
      • How to Get Approved for a Home Loan
      • Save Money When Building a House
      • How to Save for a Downpayment
      • When to Refinance Your Mortgage
    • Explore More
      • 15 vs. 30-year Mortgage
      • Home Warranty vs. Home Insurance
      • Veterans United Home Loan Review
      • Quicken Loans Review
      • HELOC vs Second Mortgage
      • DCU Mortgage Review
      • Costco Mortgage Program Review
      • USAA Mortgage Loan Review
  • Credit
    • Best Of
      • Best Credit Repair Companies
      • Best ID Theft Protection Services
      • Best Credit Report Options
      • Best Bad Credit Loans
    • Guides
      • How to Build Your Credit Score
      • How to Raise Your Credit Score in 5 Months
      • How to Dispute Your Credit Report
      • Hot to Remove Collections from Your Credit Reports
      • How Identity Theft Destroys Your Credit Score
    • Explore More
      • What is a Good Credit Score?
      • What is a Bad Credit Score?
  • Debt
    • Best Of
      • Best Debt Consolidation Loans
      • Best Personal Loans
      • Best Student Loans
      • Best Student Loan Refinance
    • Guides
      • What is Debt Consolidation?
      • How to Get Out of Debt
      • How to Get a Personal Loan Approved
      • How to Pay Off Student Loans Faster
      • Should I Consolidate My Debts?
      • Should I File for Bankruptcy?
    • Company Reviews
      • Credible
      • Sofi

GFC 090: Required Minimum Distribution Rules For IRA and 401k’s

https://www.goodfinancialcents.com/wp-content/uploads/2019/07/MG_5503-150x150.jpg
  • Written By:
    Jeff Rose, CFP®

    Jeff Rose, CFP®

    Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance...

    Read More
  • Updated: September 3, 2022
  • 3 Min Read
  • Advertising Disclosure

    Advertising Disclosure

    GoodFinancialCents® has an advertising relationship with the companies included on this page. All of our content is based on objective analysis, and the opinions are our own. For more information, please check out our full disclaimer and complete list of partners.

Quality Verified THE GFC® PROMISE
shield check icon
Quality Verified

GoodFinancialCents® partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

shield check icon
Why You Can Trust GoodFinancialCents®

GoodFinancialCents® partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

https://traffic.libsyn.com/goodfinancialcents/GFC_90_RMD.mp3

Remember the first day you put money into your retirement account?

You have seen your retirement account grow over the years and you have been blessed because you have never had to tap into it.

Now the grand-kids are your new focus and you have decided to just pass it on them since you will never need it.

required minimum distribution rules

You have just turned 70 and a friend of yours in a similar situation is griping because they had to pay taxes on their retirement plan because they had to take money out.

Puzzled on the IRS rules you do some research (or go to my blog) and you learn about Required Minimum Distributions.

We’ll call them RMD’s for short.

It’s Time To Take Your Distributions

The beauty of investing in retirement plans is the tax deferred growth. All these years you’ve seen your account grow but never had a 1099 you had to report any of those gains on. You planned well enough were you have prolonged withdrawing even longer now, but you can only hold out for so long.

The IRS is chomping at the bit waiting to get some of that tax money back. They do so with RMD’s by making you take out a portion of your retirement account each year and pay the respective tax on it.

If you don’t take it out, you get taxed 50% of the amount that you should have taken.

That’s a pretty stiff penalty that you want to avoid.

RMD’s and 401k’s

Typically, the same required minimum distribution rules apply to your 401k as your IRA.   The big difference, however, is if you are still working until after you’ve reached 70.5.  In that case, the IRS allows you to postpone your RMD’s up until the day you retire.  That’s a good scenario for those that haven’t saved enough and continue to work to boost their retirement savings.

When do RMD’s  have to start?

The IRS says you must start by April 1 following the year that you turn 70 and a half, and you must do it each year ongoing. Some retirement plans will allow you to postpone withdrawing so long as you are still employed by that company. Keep in mind that April 1 is for the first year and the first year only. After the first year, it falls back to a calendar year schedule and must be withdrawn by December 31.

RMD Example

Somebody born on July 1, 1945 would not turn 70.5 until January 1, 2016. That means that they would not have to take their first RMD until April 1, 2017 (which would satisfy 2016 RMD requirement).

They would, however, be required to take another distribution that year by December 31, 2017 to satisfy for that year. Each year following would follow the December 31st deadline.

How much do you have to take?

The amount will also be based on the previous year’s balance in your retirement plan. For example, to figure your RMD for 2017 you would take the value of your plan as of December 31, 2016.

The amounts to be withdrawn are based of life expectancy tables issued by the IRS which factor in your age, your beneficiary’s age, and your relationship with your beneficiary. Based on the 2016 Uniform Life Expectancy Table, you can expect to be required to withdraw 3.65% of your retirement plan when you turn 70.5. It then increases to 3.77% the next year and increases each year ongoing. The IRS tables are named:

  • Single Life Expectancy
  • Joint Life and Last Survivor Expectancy
  • Uniform Lifetime

The tables are helpful, but nowadays calculators are used to compute the amount with ease. Please seek guidance from a financial professional to ensure that you are taking your RMD’s correctly.

Do You Have to Calculate RMD’s on Your Own?

Luckily, no.  Most financial institutions will calculate the figure for you.   For all my clients that have reached RMD age, my custodian calculates the RMD amount for my clients and then I contact the client to notify them of the amount.

Another thing to consider is that since it is a taxable distribution, your IRA custodian will most likely require you to sign a form to take out the money (at least the first time).  If a form needs to be signed, don’t procrastinate and wait till the last minute.

What About RMD’s and Roth IRA Conversions?

With the rules regarding Roth IRA conversions now lifted, I’ve had several RMD candidates inquire about converting their RMD’s directly into a Roth IRA.

While the concept sounds good, it’s not allowed.  The IRS will make you pay tax and remove the RMD proceeds.  Anything left after the RMD can be converted into a Roth IRA – just remember you’ll have to pay the appropriate tax.

Facebook LinkedIn Twitter

About the Author

Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance book Soldier of Finance. He was a financial planner for 16+ years having founded, Alliance Wealth Management, a SEC Registered Investment Advisory firm, before selling it to focus on his passion - educating the masses on the importance of financial freedom through this blog, his podcast, and YouTube channel.


Jeff holds a Bachelors in Science in Finance and minor in Accounting from Southern Illinois University - Carbondale. In addition to his CFP® designation, he also earned the marks of AAMS® - Accredited Asset Management Specialist - and CRPC® - Chartered Retirement Planning Counselor.

While a practicing financial advisor, Jeff was named to Investopedia's distinguished list of Top 100 advisors (as high as #6) multiple times and CNBC's Digital Advisory Council.

Jeff is an Iraqi combat veteran and served 9 years in the Army National Guard. His work is regularly featured in Forbes, Business Insider, Inc.com and Entrepreneur.

Facebook Twitter LinkedIn

You Might Also Enjoy

Beware of WhatsApp Scams

Beware of WhatsApp Scams

Understanding the Basics of Contributory IRA: A Comprehensive Guide

Understanding the Basics of Contributory IRA: A Comprehensive Guide

Best Mortgage Refinance Companies of 2023

Braces vs. Invisalign: Did I Really Spend $16,000+ On My Kid's Teeth?

Braces vs. Invisalign: Did I Really Spend $16,000+ On My Kid's Teeth?

Where Do Millionaires Keep Their Money?

Where Do Millionaires Keep Their Money?

Esurance Car Insurance Review

Esurance Car Insurance Review

11 Comments

  1. Ahmet Topcubasi September 28, 2017

    I am becoming 70.5 years old this year. I have a 401k account from my current employer. Do I need to notify IRS that I am still working or they will know my situation?

    Reply
    • Jeff Rose October 2, 2017

      Hi Ahmet – I don’t think so, since you’re still employed with the company that also holds the plan. The plan administrator should take care of this. But if you get a letter from the IRS, you can just show that you’re still employed with a copy of a recent paystub and your latest W2.

      Reply
  2. James Jenkins August 8, 2017

    I have heard you can leave your rmd in your 401(k) if you just pay the tax on the rmd. Is it true?

    Reply
    • Jeff Rose August 9, 2017

      @james I’ve never heard of this in all my years of being an advisor.

      Reply
  3. Edward July 2, 2017

    I’m turning 70 in December and working. Is it mandatory to start distribution from 401k or not till I stop working?

    Reply
    • Jeff Rose July 6, 2017

      Hi Edward – You’re generally supposed to begin taking RMDs at age 70.5. But I believe there is an exception if you are still working for the plan sponsor. Now if you have 401(k) plans from previous employers, you must begin taking distributions from those. The exception doesn’t apply to non-active employers.

      Reply
  4. mahesh shah December 22, 2016

    [ HAVE 2IRA ACT & 2 ROTH IRA ,SO I CAN PAY RMD TOTAL FROM ONE ACT BEFORE 70.5 +1ST APRIL NEXT YEAR.

    Reply
    • Jeff Rose December 26, 2016

      Be careful Mahesh – If you have multiple accounts, the RMDs must come from each account. You can’t do a distribution from one account to cover them all.

      Reply
  5. perry Hartge October 26, 2016

    I have a 401 retirement fund and a IRA account
    I’am required to take and RMD this year
    Can add the total of both accounts together and withdraw that total from one account ?

    Reply
    • Jeff Rose October 26, 2016

      Hi Perry – I believe that since they are separate plans, each has to calculate – and distribute – a separate RMD. If you want it to come out of one account then you may want to consider rolling the 401k over into your IRA. But make sure you aren’t giving up any benefits from the 401k before you make the move.

      Reply
      • perry Hartge October 26, 2016

        Jeff, Thanks for your answer
        This will put me in a situation that will cost me money
        My 401 has no management fees, moving it into my IRA will incur a management fee

        Reply

Leave a Reply

Cancel reply

  • Make Money
  • Manage Money
  • Invest
  • Taxes
  • Insurance
  • Retirement
  • Banking
  • Home
  • Credit
  • Debt
  • About
  • Contact
  • Facebook LinkedIn Twitter

© 2023 Good Financial Cents®. All Rights Reserved. | Privacy Policy | Disclaimer

All written content on this site is for information purposes only. Opinions expressed herein are solely those of AWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

All third party trademarks, including logos and icons, referenced in this website, are the property of their respective owners. Unless otherwise indicated, the use of third party trademarks herein does not imply or indicate any relationship, sponsorship, or endorsement between Good Financial Cents® and the owners of those trademarks. Any reference in this website to third party trademarks is to identify the corresponding third party goods and/or services.

x
x