Required Minimum Distributions (RMDs) Calculator

What Are Required Minimum Distributions?

Requirement Minimum Distributions (RMDs) are the withdrawals the IRS requires you to make from certain types of retirement accounts to avoid penalties. Tax-deferred retirement accounts, like a traditional IRA, allow your savings to grow tax-free. To ensure that you eventually pay taxes on these earnings, the IRS sets an age at which you must begin withdrawing these funds (and paying taxes on those withdrawals).

As of 2023, the RMDs age is 73 if you turn 72 after Dec. 31, 2022. (If you turned 72 on or before Dec. 31, 2022, the RMDs age is 72.) To avoid penalties, you will need to begin taking the minimum required withdrawals by April 1st of the year after you turn 73 and continue making the minimum withdrawals by December 31st of each subsequent year.

Here are some of the most common retirement accounts that implement Required Minimum Distributions:

• Traditional IRA
• SEP IRA
• 401(k)

This is not an exhaustive list, but it includes some of the most common tax-deferred accounts that institute RMDs.

For people who continue working past 70 or live comfortably on Social Security benefits alone, it can be tempting to let retirement accounts grow until they’re needed. However, once you turn 73, you’re doing more harm than good to your finances by waiting to withdraw funds. The taxes imposed on undistributed funds are far more than the standard income tax you would pay on retirement account withdrawals.

>> Useful Resource: IRA Minimum Distribution Calculator

How Are RMDs calculated?

The IRS uses the life expectancy method to assign a number to your age that correlates to your predicted life expectancy. The Social Security Administration provides a breakdown of actuarial life expectancy by age, which varies from 84 (male) to 86 (female) years old for seniors who have already reached 73 years of age.1 Your life expectancy, combined with the fair market value of your retirement account at the end of the previous year, allows us to calculate the minimum you’ll need to withdraw each year.

What Happens If I Don’t Take My RMDs?

For years, if you didn’t take out RMDs or your withdrawals did not meet the minimum for a given year, you would incur a 50% excise tax on the undistributed funds. Following the passage of the SECURE 2.0 Act in 2022, the excise tax was dropped to 25%. In some cases, you may be able to reduce this tax to 10% if you’re able to withdraw the correct amount within two years.2 Even if you qualify for the minimum excise tax, just one missed or miscalculated payment could severely eat away at your retirement savings.

How to Use Our Required Minimum Distributions Calculator

To use our Required Minimum Distributions (RMDs) calculator, have the following information on hand:

• Your date of birth
• The date of birth of your plan’s designated beneficiary
• Status of the designated beneficiary (spouse or other)
• Account balance at the end of last year
• Anticipated return before turning 73
• Anticipated return after turning 73

Most of this information should be readily available to you, but it’s not always easy to predict your retirement account’s future returns. If you’ve had the retirement account for at least a few years, you can look at its growth over time to calculate the average return per year. Keep in mind that many seniors choose to move their assets into lower-risk investments as they age, which is why you may estimate a lower return after you turn 73. It will ultimately come down to your personal investment strategy and risk tolerance.