Required Minimum Distributions (RMDs) Calculator
Use our free RMDs calculator to estimate how much money you’ll need to withdraw from your retirement account in retirement.
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).
Money Tip: Need help planning for retirement? Check out our guide on retirement planning for seniors.
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
This is not an exhaustive list, but it does include some of the most common tax-deferred accounts that institute RMDs.
FYI: If you want to avoid RMDs entirely, you can roll over your current retirement savings into a Roth IRA account before you retire.
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.
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.
Pro Tip: Consider working with a trusted financial advisor to get the most out of your retirement savings and estate planning.
How to Use Our Required Minimum Distributions Calculator
To use our Required Minimum Distributions (RMDs) calculator, you’ll just need to 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. However, it will ultimately come down to your personal investment strategy and risk tolerance.
FAQs About Required Minimum Distributions
What is the RMD for $500,000?
If you’re 73 years old with a retirement account valued at $500,000, your first RMD will need to be $18,868 (500,000 / 26.5 = 18,868).
What is the 10-year RMD rule?
In cases where the beneficiary of a tax-deferred account is not a spouse or does not plan to roll the funds over into an eligible retirement account, they will need to withdraw all funds from the account within 10 years.
Is it better to take RMDs monthly or annually?
Monthly withdrawals are better if you want regular income or need the funds to pay bills. However, if you want your funds to have more time to grow tax-free, it’s better to take RMDs annually.
Social Security Administration. (2023). Actuarial Life Table.
Internal Revenue Service. (2023). Retirement Plan and IRA Required Minimum Distributions FAQs.