Use SmartAsset’s RMD calculator to see what your required minimum distributions look like now and in the future. Enter your retirement account balance at the end of the previous year, your age and the expected rate of return on the account to calculate your RMDs.
Do you have retirement planning questions? Speak with a financial advisor today.
What Is an RMD Calculator?
The IRS requires that most retirement account holders annually withdraw a minimum amount of funds from many different types of pre-tax retirement accounts once you reach a certain age. These are called required minimum distributions, or RMDs, and their purpose is to ensure the government can receive tax payments on this money instead of it continuing to sit in your account.
Your first RMD must be taken by April 1st of the year after you turn either 72 or 73. More specifically, for those who turned 72 after Dec. 31, 2022, the RMD age has been changed to 73. For instance, if you turned 72 in 2023 and will turn 73 in 2024, then you can wait to take your 2024 RMD until April 1, 2025 since that’s the year after you turn 73. For those who turned 72 before Dec. 31, 2022, your RMD age is likely still 72.
An RMD calculator is a tool designed to estimate the annual withdrawals individuals must make from their retirement accounts once they reach their RMD age. This tool is designed with the intent to help you avoid exhausting your retirement savings prematurely, thereby securing a steady income stream during your retirement years.
The RMD calculator can serve a crucial role in long-term retirement planning. It helps you determine the minimum amount you need to withdraw from your retirement accounts annually, thereby assisting you in maintaining a balanced budget in your retirement years. Plus, it can help you avoid potential penalties for not withdrawing the required amount.
Why Required Minimum Distributions (RMDs) Can’t Be Ignored
RMDs play a pivotal role in planning out a steady stream of income during retirement, and there are real penalties for not adhering to the rules. Most importantly, those who don’t take RMDs in time will be subject to up to a 50% excise tax on the amount they didn’t withdraw. The SECURE 2.0 Act offers chances to drop that to 25% or 10%, though, if the RMD mishap is corrected by taking extra within two years. The IRS may waive the penalty under certain circumstances, though.
Additionally, RMDs can have significant tax implications due to the pre-tax nature of the accounts those funds typically reside in. Assets withdrawn from traditional IRAs and 401(k)s are subject to income taxes, with the exception of after-tax accounts like Roth IRAs. Therefore, by accurately calculating RMDs, retirees can plan their income tax liabilities and avoid potential financial hurdles that come with skipping that step.
When Do I Have to Take RMDs?
Starting in 2023 and beyond, you are required to begin taking RMDs by April 1st of the year following your 73rd birthday. However, if you turned 72 before Dec. 31, 2022, you are required to start taking RMDs by April 1st of the year after you turn 72.
Generally, you have until Dec. 31 each year to take your RMD. However, for the first RMD, you have until April 1 of the year following the year you hit your required RMD age. Keep in mind, though, that delaying the first RMD means you’ll be taking two distributions in one year, potentially pushing you into a higher tax bracket for that tax year.
Some exceptions to the RMD rules do exist to create some flexibility if you’re still working past the required age. If you’re still working and don’t own 5% or more of the business you work for, most retirement plans will allow you to delay RMDs until you actually retire.
This delay can yield significant tax advantages, such as reducing your overall taxable income, for those deciding to work later in life. However, 401(k)s from previous employers may not allow you to do this.
How to Calculate RMDs
An RMD calculation requires inputs such as your age, account balance and marital status, as well as using the IRS Uniform Lifetime Table to estimate your annual RMD. This straightforward method considers various factors influencing this amount.
However, factors like your age, the balance of your retirement accounts and your spouse’s age can significantly impact your RMD. Therefore, consulting with a financial advisor to ensure accurate calculations is advisable if it’s not clear to you where you stand.
The IRS provides RMD tables showcasing life expectancy factors used to calculate RMDs. You must find the distribution period number that corresponds to your age and use that in the calculation. Here is what the Uniform Lifetime Table looks like:
IRS Uniform Lifetime Table
|Distribution Period in Years
|120 and over
You can use this table to calculate your required minimum distribution amount this year by completing these steps:
- Locate your age on the IRS Uniform Lifetime Table
- Find the “life expectancy factor” that corresponds to your age
- Divide your retirement account balance (as of Dec. 31 of the previous year) by your current life expectancy factor
These calculations are done every year, and if the balance in your account changes significantly then so could your RMDs, as your life expectancy declines each year you live. You will not likely withdraw the same amount each year.
Types of Retirement Accounts That Require RMDs
Most types of retirement accounts require you to take RMDs. Here’s a quick list of accounts that require RMDs:
The big exception to this rule are Roth IRAs and other Roth accounts, but there are some stipulations to this. Roth IRAs are not subject to RMDs in any way. However, for 2022 and 2023, Roth 401(k)s and Roth 403(b)s were subject to RMDs. This is no longer the case in 2024 and beyond.
The only time a Roth IRA would be subject to RMDs is if it’s inherited by a beneficiary. In this case, the IRS does require that you take RMDs from the account.
FAQs for Calculating RMDs
There are a number of complex issues as it relates to RMD calculations. Here are answers to some of the most frequently asked questions in order to help you digest some of the more difficult pieces in this scenario.
Are Roth IRAs Subject to RMDs?
You typically won’t be required to take required minimum distributions out of your Roth IRA. Again, while this rule exists for your lifetime, if you die and pass on your Roth IRA to an heir, they will likely be required to take RMDs. There is an exception to this rule for your spouse, though.
How Is My RMD Calculated?
As discussed above, your RMD is calculated using the fair market value (FMV) of your IRA account as of Dec. 31 of the previous year you’re taking an RMD and your life expectancy. Using the life expectancy distribution period and Uniform Lifetime Table provided by the IRS, you can then determine what your RMD will be for the year.
Can I Reinvest an RMD Into a Tax-Advantaged Account?
No, this cannot typically be done. You can’t put these funds back into an IRA or 401(k) to take advantage of specific tax breaks. You can, however, invest the money into a taxable brokerage account after you’ve paid taxes on the distribution. You can also save the money in a high-yield savings account if you don’t need the money for living expenses, or redirect it to a tax-advantaged 529 plan or qualified charity.
Who Qualifies as an Eligible Designated Beneficiary?
An eligible designated beneficiary (EDB) is always an individual who inherits a retirement account. These individuals have some flexibility when withdrawing funds from an inherited account. This group cannot include a trust or another entity that inherits the account. There are five categories of individuals that qualify as EDB and they are:
- Surviving spouse
- Minor children
- Individuals who are no more than 10 years younger than the original account owner
- Disabled individuals
- Chronically-ill individuals
Understanding and accurately calculating RMDs can significantly affect your financial stability in retirement. Proper management tools, like annually recalculating your RMDs and ensuring adequate withdrawals, work as strategic moves. If managing RMD intricacies seems daunting, a financial advisor’s expertise may prove beneficial, aiding you in your journey toward a secure and comfortable retirement.
Tips for Retirement Planning
- Understanding RMD requirements is just one of many things you need to plan out for your retirement. A financial advisor can help you build a retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- You can use a retirement calculator to help you see how much you’ll need to retire comfortably.
Photo credit: ©iStock.com/Korrawin, ©iStock.com/Witoon Pongsit