Required Minimum Distributions for Your 401(k): How to Calculate RMDs and Rules to Know

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Updated on Friday, November 6, 2020

When you have a 401(k), you can save your money and put off paying federal taxes for years, even decades. To ensure you eventually do pay taxes on that money, the government requires you to start making withdrawals — your required minimum distribution (RMD) — from your account once you reach a specific age.

The rules around RMDs are strict, and if you don’t take out the minimum amount each year, you could end up paying hefty penalties. Here’s how RMDs work and what you can do to minimize your tax bill.

What is a required minimum distribution (RMD)?

Required minimum distributions (RMDs) are withdrawals you have to start taking from your retirement account each year at a certain age. The RMD amount is the minimum you need to withdraw, but you can always take out more than the required minimum. If you celebrate your 70th birthday on July 1, 2019 or later, you don’t have to start taking distributions until the year you turn 72.

You’re responsible for calculating your RMD and withdrawing the correct amount. You can calculate your RMD by dividing your tax-deferred retirement balance as of Dec. 31 of the previous year by the IRS’s life expectancy factor:

How to calculate a required minimum distribution

As an example, let’s say Mary is 74, unmarried and has $200,000 in her retirement account as of Dec. 31, 2019. In her case, she would use the Uniform Lifetime table to calculate her RMD. By using that table, Mary sees that her distribution period is listed as 23.8. To find her RMD, she would divide her account balance by that number ($200,000 ÷ 23.8). The result is $8,403.36 — that’s the amount she’d have to take out of her 401(k) account that year to satisfy the RMD rules.

RMDs are taxed as ordinary income. If you receive Social Security benefits and are wondering if Social Security benefits are taxable, keep in mind that your 401(k) RMDs can push your income into a higher tax bracket, impacting the taxes you may have to pay on Social Security.

RMD rules for 401(k) plans

When it comes to RMDs, it’s important to understand their rules and intricacies to avoid costly penalties. Below are some key rules you should keep in mind.


The deadline for taking your RMD is Dec. 31 each year. However, you can delay withdrawing the RMD until April 1 of the year after you turn 72 if you’re taking an RMD for the first time (or, in certain cases, until after the year you retire).


With your 401(k) minimum distribution, you can take out your RMD as a lump sum, or you can split it into smaller withdrawals throughout the year. Regardless of which method you choose, the withdrawals are taxed the same way.

Excess distributions

If you take out an excess distribution — meaning more than the RMD — you cannot apply the excess to the RMD for a future year. You’ll still have to withdraw the RMD the following year, even if you don’t need that money.


The penalty for not taking the necessary RMD is steep. If you skip the RMD or take out less than you’re required, the IRS will charge you a penalty that is 50% of the amount not taken on time. For example, if your RMD is $10,000 but you only took out $5,000, you would pay $2,500 in penalties (50% of the amount not taken out).

RMDs and other retirement accounts

If you have multiple retirement accounts, such as a 401(k) and an Individual Retirement Account (IRA), you may be thinking about taking out one RMD from a specific account rather than taking distributions from each account. When it comes to IRAs, you must calculate the RMD separately for each one, if you have multiple accounts. You can then withdraw the total amount from one or more of your IRAs. However, your RMD from your 401(k) must be taken separately from the RMD you take out of your IRAs.


If you withdraw your RMD and don’t need the money for your living expenses, you may be considering reinvesting your withdrawal. However, RMDs cannot be rolled over into another tax-deferred account.

If you’d like to reinvest your money, you can open up a taxable brokerage account, which does not have the tax advantages of a 401(k) or IRA.


RMDs are taxed as ordinary income, and you may owe both federal and state income taxes. There are three different ways to pay your taxes:

  • Lump sum in April: You can pay your tax bill as a lump sum when you file your annual tax return in April. However, if you owe money, you may owe a penalty with this approach.
  • Estimated tax payments: You can make quarterly estimated tax payments throughout the year. With this approach, you divide up how much you owe into four payments each quarter. By doing this, you may avoid the penalty that may come with making a lump sum payment on Tax Day.
  • Tax withholding: You can opt to have a portion of your RMDs automatically withheld to satisfy federal income tax requirements. Contact your 401(k) retirement plan administrator if you’d like to pursue this option.

How to avoid RMDs

If you’re worried about RMDs you may want to talk with a tax consultant or a financial advisor. There are also two strategies you can use to avoid RMDs:

  • Convert your 401(k) into a Roth IRA: If you have a 401(k) and want to avoid required minimum distributions, one option is to convert your account to a Roth IRA. Roth IRAs do not have RMDs. You’ll pay ordinary income taxes on the amount distributed, but after that, you no longer have to take RMDs or pay taxes on your withdrawals.
  • Keep working: If you continue working past the age of 72 and don’t own more than 5% of the company for which you work, you may be able delay distributions from your 401(k) until you retire. This option is not available for IRAs.

Exceptions to RMDs

While you can be exempt from RMDs if you’re still working or you convert your 401(k) to a Roth IRA, there are no other exceptions. However, if you miss an RMD, you may be able to have the penalty waived if you can prove the shortfall was due to a reasonable error and show that you’re making steps to resolve this problem.

To have the penalty waived, you must complete Form 5329 and attach a letter of explanation.

COVID-19 impact on RMDs

To help people affected by the coronavirus pandemic and the corresponding economic recession, the government passed temporary measures in the coronavirus relief bill (known as the Coronavirus Aid, Relief and Economic Security (CARES) Act) that affected RMDs and retirement accounts:

  • No RMDs required: For 2020, RMDs are not required. You can leave the money in your account untouched.
  • Return of RMDs: If you already took out your RMD for 2020, you may be able to return it to your retirement account so the money can continue to grow. If you can afford to do so, taking advantage of this measure can help you build your retirement nest egg.
  • No penalty for withdrawals: If affected by the pandemic, you can take out up to $100,000 from your retirement account before reaching age 59½ without having to pay a 10% early withdrawal penalty. This exception is only in place for distributions taken in 2020.

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