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Life Events

10 Cities Where Women Outearn Their Partners

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Despite the growing prevalence of women in the workforce, the median earnings of women over the age of 25 was $32,679 in 2017, with men’s median earnings for that same age group at $46,152, per U.S. Census Bureau data, who estimated that women only earn nearly 71% of their male counterparts.

The reasons for this discrepancy are stridently debated, with theories ranging from personal preferences to mismatched family responsibilities, cultural pressure, institutional compensation or advancement bias. Whatever combination of factors are keeping women’s pay low, the fact remains that female workers make less than their male counterparts — both at work and at home.

Our new analysis takes a closer look at pay differences between men and women to see how it affects couples. To find out whether some places are more likely to have a balance between male and female breadwinners, we analyzed microdata from the American Community Survey conducted by the U.S. Census for the 50 largest metros in the country.

In an ideal world, men and women would be equally likely to be the breadwinner of a couple. But our analysis found that in the 50 largest metros, women were the main breadwinner in less than 31% of couples’ households.

Key takeaways

  • Women are far less likely to be the breadwinners in a couple, our study found. Even in the cities with the highest rates of female breadwinners, women outearned their partners in just one out of three coupled households.
  • Hartford, Conn., takes the No. 1 spot. In 31.1% of this city’s coupled households, a woman was the partner who earned more. Minneapolis and Columbus, Ohio, follow in second and third place, with female breadwinner rates of 31.2% and 30.7%, respectively.
  • Only 22.6% of couples in Salt Lake City have female breadwinners, earning it the last place spot (50th) on our list. Following at 49th and 48th place are Houston and Riverside, Calif., with female breadwinner rates of 23.5% and 23.9%, respectively.

Top 10 cities where more women outearn their partners

In the 10 major U.S. cities with the highest rates of couples with female breadwinners, roughly three in 10 couples have a woman earning more than her partner.

This is a contrast to other surveys that have found higher rates of female breadwinners, such as 49% of women who said they were the primary breadwinner in an NBC News-Wall Street Journal poll. The difference in these findings could be attributed to single women or single mothers who are the household’s sole income earners. Women may be more likely to be breadwinners in these surveys that include those who report they’re not competing with a partner for that title.

When they are paired up, however, our analysis shows that women are less likely to be the higher earner. Here’s a closer look at the 10 major U.S. cities that had the highest rates of female breadwinners.

1. Hartford, Conn.

Women who are partnered up are the most likely to be the breadwinner if they live in Hartford. Here, 31.3% of coupled women outearn their partner. This could be thanks to the higher parity of pay in this city, where the gap between men and women’s earnings shrinks to just 17.8%.

2. Minneapolis

Next is Minneapolis, which has almost the same rate of female breadwinners, with 31.2% of coupled women earning more than their partners.

Minneapolis also took the No. 2 spot in our ranking of the best cities for working women. Its high ranking is due to a number of factors, but it’s a true standout for low unemployment among women and decent workplace protections for pregnant women and mothers.

3. Columbus, Ohio

In Columbus, 30.7% of partnered women are the breadwinners. Overall, women here make about $0.19 less per dollar than their male counterparts, well in line with the average among all 50 cities included in this analysis.

4. Providence, R.I.

Providence, R.I. has a female breadwinning rate of 30.5%. This is no surprise, given that it was the eighth-best city for working women in our 2018 study.

While the gender pay gap is above average here, at 19.9%, Providence has above-average rates of women in management positions along with better policies for maternity and parental leave.

5. Baltimore

Among women in Baltimore who are part of a couple, 30.2% outearn their partners. Here, women earn just 18.8% less than men, giving them a better chance of landing pay that beats their significant other’s salary.

6. Sacramento, Calif.

The third-best city for working women, Sacramento, also has one of the highest rates of female breadwinners: 30.0%.

It offers a lower pay gap between genders, with women earning just 14.6% less than men. Sacramento also gets a boost from California’s robust policies and benefits for pregnancy, maternity and family leave.

7. Boston

Boston is the next city with the highest rate of coupled households for which women are the breadwinners, at 29.6%. The gender pay gap here is 18.9%, which is just below average.

8. San Francisco

Next is another top city for working women, San Francisco. Here, the gap in median pay by gender is 18.7% and women outearn their partners 29.5% percent of the time. As another Californian city, women workers in San Francisco are also likely to benefit from strong parental and family work policies.

9. Memphis, Tenn.

In Memphis, women are the breadwinners in 29.4% of couples’ households — that’s despite its ranking as the second-worst city for women. It has just a few redeeming factors, however, such as the above-average number of female managers and the below-average childcare costs in Memphis.

10. Richmond, Va.

Couples in Richmond are among those most likely to be led by a female breadwinner, with 29.2% of women out-earning their partners. Women here earn $0.19 less for every $1 male workers earn, only slightly above the average. Still, working women in Richmond are more likely to receive employer-provided health care and more affordable child care costs, which can offset this pay gap.

10 cities where women aren’t breadwinners


Along with the 10 cities that had the highest rates of women out-earning their partners, we also found the 10 major U.S. cities where women were the least likely to be breadwinners. In these cities, around a quarter (or fewer) of women with partners bring home higher pay than their significant other.

Most of these cities were also among the worst places for women to work, including Detroit and Oklahoma City. Still, low rates of female breadwinners isn’t always a sign of a city that disadvantages women, as three of these cities were among the 15 best places for working women: Austin, Texas; Phoenix; and Virginia Beach, Va.

How the gender pay gap affects shared finances

Overall, this study is another sign of how women are often behind when it comes to pay. The gender pay gap is a big contributor to the low rate of female breadwinners, but it affects more than just women.

When a woman is paid less, this impacts her partner too. The entire household comes up short, setting back financial goals such as paying down debt, building security and savings, and managing money day-to-day.

Some women will also feel the pain of the wage gap more than others, too. Same-sex couples comprised of two female earners, for example, will be doubly hit by the setbacks of the gender pay gap. Women who are the sole breadwinners might also find that they’re having to support their family on less pay than many men in the same position. And for women who earn less than their partner, a separation or divorce can be particularly problematic for their finances.

Many of these factors are outside of U.S. women’s immediate control — but that makes it all the more important to focus on improving their finances where they can.

Here are some ways women can work to close, offset, or compensate for the gender pay gap.

Work on increasing your income. The top cities are proof that the gender pay gap doesn’t have to be universal, and many women are finding ways to close or even overcome it. Take a look at your current pay and do some research through sites such as PayScale or Glassdoor to figure out if it’s fair. If it’s not, it might be time to ask to be paid what you’re worth, either with your current employer or a new one.

You can also look out for career training and opportunities that could act as stepping stones to higher-paying positions. You can even create your own opportunities to boost your income and grow your skills with a side hustle.

Share costs fairly. There are a lot of ways for couples to manage their money together, so look into different methods and decide together on one that’s equitable. If your partner earns twice as much as you, for example, does it really make sense to split expenses 50-50? Discuss how you can work with differences in pay to ensure that both assets and expenses are equally and fairly shared.

Make savings a priority. Women in a couple must save for their own future, regardless of what they earn. It can be wise to have your own checking or savings accounts that are held in your name alone, where you can build financial security independent of your partner. It’s also wise to set up your own retirement accounts and contribute to those regularly, as well.

Manage debt wisely. Debt can be a huge source of stress for couples. On top of that, debt accrued in marriage can be considered jointly shared, making you equally responsible for its repayment even if your spouse took it out. So it’s smart to practice good budgeting habits, live within your means and avoid getting into debt. Even if you’re not married, your or your partner’s debt will still affect shared money goals and lower the debtor’s ability to contribute as equally. Work on paying debt off faster, and look into ways to lower costs such as credit card consolidation.

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A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

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While women with a partner are still less likely to be the breadwinners than partnered men, it doesn’t have to hold back their finances. Choose a significant other who values and equal partnership and practices sound financial management. Aim for higher-paying positions at work to try to close the gender gap. Then improve your own money skills and knowledge so you can make the most of your income.

Methodology

Analysts used the U.S. Census’ American Community Survey 2017 microdata hosted on IPUMS to determine the percentage of coupled households with a female partner, where a female partner had the higher income. The analysis was limited to the 50 largest metropolitan statistical areas in the U.S.

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College Students and Recent Grads, Eliminating Fees, Life Events

When to Avoid a Company 401k

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Man Paying Bills With Laptop

Gone are the days of workers depending upon pensions when they retire. Today, instead of offering defined benefit pensions guaranteeing an employee a monthly payment for the rest of his or her life, employers are moving to more employee-managed retirement savings plans.

Today, more employers offer a 401k plan – if they have an employer-based plan at all. With a 401k, employees make a defined contribution from their income each year. With a pension plan, employees knew exactly how much income they could depend on each month during retirement. Now, it is up to the employees to determine how much they need to save in order to reach their retirement savings goals.

A 401k allows employees to make defined contributions, pre-tax (or post-tax), towards retirement. If you contribute to a traditional 401k, contributions are automatically deducted from your paychecks each pay period, pre-tax. As a result, you don’t pay taxes until money is withdrawn from the account and you cannot withdraw money before 59 ½ without penalties. Some employees offer the option to contribute post-tax in a Roth 401k, so money withdrawn in retirement will not be taxed.

With this change toward employee-directed retirement, rather than retirement guaranteed by the employer, it is up to you to make the best decisions regarding your retirement savings. This could mean it’s best to avoid a company 401k.

Take a look at these situations in which you should not pay into your employer’s 401K, and see if any of them apply to you.

No Employer Match

Many employers provide a match to their employees’ 401k contributions. Employer matches vary greatly by employer, but a common example of this is $0.50 per $1.00, up to 6% of employees’ pay.

Let’s say you earn 40,000 per year at your current job, and your employer provides a $0.50 per $1.00 match, up to 6% of your pay. If you were to contribute the full 6% of your pay annually, you would contribute a total of $2,400 to your 401K over the course of a year. Your employer would then contribute $0.50 for every dollar you contributed, for a total of $1,200 for the year.

In total, over the course of the year your 401K would contain $3,600, and you only would have contributed $2,400 of the balance.

But if your employer does not provide a match, it may be time to reconsider contributing to its 401K plan. Never walk away from an employer match, as it is basically free money, but if your employer does not provide a contribution match, it may be time to consider other options like saving for retirement in a traditional or Roth IRA.

You Have Reached The Contribution Limit

Effective January 1, 2020, the 401k contribution limits are $19,500 if you are age 49 and under. If you are 50 or older, you can contribute an additional $6,500 above and beyond the $19,500 regular contribution, for a total of $26,000. Of course, you are free to contribute less to a 401K, but saving as much as possible for retirement is always best.

Once you have reached the contribution limit on your 401k, you cannot make any more contributions pre-tax, and it is time to consider alternative investments.

One good alternative is a Traditional IRA. Contributions are made to a traditional IRA after tax, meaning that you pay taxes, and then make contributions out of your paycheck. For 2020, individuals can contribute up to $6,000 per year to a traditional IRA if they are 49 and under. You can contribute up to $7,000 per year if you are 50 or older.

Another solution for aggressive savers is a taxable account such as stock index funds. When using taxable accounts such as these, you can expect to pay 15% on long-term gains and qualified dividends. Additionally, contributions to these plans are made after-tax. However, the benefits of using accounts such as these include being able to withdraw from them for things such as children’s college expenses before age 59 ½ without additional penalties and fees.

You Qualify For a Roth IRA

If you employer does not offer a 401k match – or a 401k plan at all – and you meet income thresholds, then a Roth IRA may be an excellent option for your retirement savings.

A Roth IRA allows individuals whose modified adjusted gross income, which you can calculate at the IRS website, is less than $139,000, or married couples whose income does not exceed $206,000 to contribute to their retirement.

A Roth IRA is different from other accounts, though, because of the way taxes are handled. Contributions are made after tax. However, once the initial contribution is made, you enjoy tax-free growth as long as you follow the rules:

  • 49 and under can contribute a maximum of $6,000
  • 50 and over can contribute up to $7,000
  • You can withdraw your contributions (not growth) at any time without penalty

How much can a Roth IRA save in taxes? If you contribute $5,500 per year to a Roth IRA for 40 years, and your marginal rate is 15%, this is what your account’s growth could look like over the course of 40 years:

401k_1

In this scenario, you would have only paid in $230,000 during the entire 40 years you worked. You would have paid $34,500 in taxes from your paychecks.

However, your relatively small investment could grow to $1,189,636 – and you will not have to pay taxes on any of that balance when you withdraw it. If your marginal tax rate stayed at 15% when withdrawing money from your Roth IRA, you could save more than $143,000 in taxes alone.

See how much money you can save with a Roth IRA, and how much money it can save you in taxes here, with Bankrate’s Roth IRA calculator.

High Fees

If your employer offers a 401k without a match, a good way to gauge whether it is a good investment vehicle for your retirement savings is to take a look at the fees. Many times both employees and employers are unaware of just how much fees are costing them. After all, 3% seems like such a small number, doesn’t it?

3% may feel like a very small amount to pay in fees, but this example will show you just how much a small percentage can affect your retirement savings.

401k_2

In this example, the investor is a 29 year old, contributing $18,000 per year to her company’s 401k, and her retirement age will be 65. The current balance of their 401K is $100,000, and fees are 3%.

Just by switching to a plan that cuts fees in half, 1.5%, she could save $801,819.03. Instead of having $1.8 million upon retirement, she could have more than $2.6 million – making for a much better retirement.

You can check out a fee calculator here and find out just how much your fees are costing you!

Even if your 401k has high fees, be sure to consider the employer match. Many times the match will more than cover the fees, making the 401k a good investment vehicle in spite of the high fees.

If You Need Flexibility

401k’s, while they offer tax advantages, and often free money through the form of an employer match, do not offer any sort of flexibility. Contributions are automatically deducted pre-tax from an employee’s paycheck in pre-set amounts, and cannot be withdrawn without serious penalties until age 59 ½.

For many families, saving and investing money is not just about retirement. It is about college, medical expenses, large purchase, and even vacations. Always contribute to your 401k up to the maximum amount that your employer will match, but if no match is available and you need flexibility for other savings priorities, check out some of these options:

A 529 Plan: An education savings plan operated through your state or an educational institution to help families set aside income for education costs. Although contributions are not deductible on your federal income tax return, the investment grows tax-deferred, and distributions used to pay the beneficiary’s college costs come out tax-free. Some states offer tax breaks for 529 contributions, you can find yours here. In addition, there are very few income and contribution limitations, making the 529 plan a great, flexible way to save for college.

A Health Savings Account: An HSA offers individuals and families the opportunity to save money exclusively for medical expenses, and contributions are 100% tax deductible from gross income. For 2020, individuals can contribute up to $3,550, and families are allowed to contribute up to $7,100. HSA accounts holders age 55 and older can contribute an extra $1,000. If using savings for medical expenses if a priority, talk to your employer about an HSA. Not all insurance plans are eligible.

Taxable Investment Accounts: When saving for large purchases or vacations, more flexible accounts are better. As explained above, index funds, mutual funds, or even traditional savings accounts leave the account holder with more of a tax burden, but far greater flexibility for withdrawals. These accounts do not need to be opened through your employer, but can be opened and managed on your own, or with the help of a financial planner.

If your employer offers a contribution match, they are essentially offering you free money, so go ahead a take advantage of the 401k, regardless of high fees or a low income. However, if your employer offers no match, high fees, or you have reached the yearly contribution limit, then it is a good idea to avoid that 401k plan and look into other retirement savings options.

At the end of the day, saving for retirement or other goals is all about you. How much flexibility you need, how much you need to save, and your tax situation. Be sure to weigh all of your options to guarantee that you are making the best decision for you and your family.

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Life Events

Ultimate Guide to Required Minimum Distributions (RMDs)

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

When you reach age 72, the government requires you to begin withdrawing money from your retirement savings accounts each year. This sum, known as a required minimum distribution (RMD), allows the IRS to begin collecting income tax on the dollars you’ve stashed away in tax-deferred accounts such as a 401(k) or traditional individual retirement account (IRA).

What is a required minimum distribution (RMD)?

Regulations governing most retirement accounts state that you cannot leave funds in the account indefinitely. Even if you don’t need the money, the government requires you to begin reducing the overall balance in most accounts by a set sum each year — the required minimum distribution — typically following your 70½ birthday.

The precise amount of each person’s required minimum distribution is determined by the IRS based on life expectancy and total savings. The RMD rule only applies to tax-deferred accounts or accounts that allow people to reduce their taxable gross income each year by the amount they set aside in the plan.

Because tax-deferred accounts provide upfront tax savings, the IRS waits to collect taxes on contributions to the accounts and any subsequent investment gains until the money is withdrawn. Here’s a full list of retirement accounts subject to the RMD rule:

  • 403(b)
  • 457(b)
  • Profit-sharing plans
  • Other defined contribution plans

The rule does not apply to Roth IRAs or Roth 401(k)s, as you’ve already paid income tax on funds contributed to these accounts. Note, however, that once the original account owner dies, Roth IRAs are subject to RMDs.

When do I have to start taking RMDs?

Retirees will need to take distributions by April 1 of the year after they turn 70½. Those with birthdays in the second half of the year benefit from this rule because it allows them to delay beginning taking RMDs for a little longer than those with earlier birthdays can.

For instance, if your 71th birthday is on July 1, 2019, you do not have an RMD for that year since you won’t turn 72 until Jan. 1, 2020, meaning you can wait until April 1, 2021 to take your first RMD. But being born just a day earlier, on June 30, would mean you’d have to take your first RMD by April 1, 2020 (as you’d reach 72 on Dec. 30, 2019).

If you are still working at age 72 and have a traditional 401(k) or 403(b) account with your current employer, you may not have to take an RMD from that account unless you own 5% or more of the company. Review your plan’s exact terms to see if it allows you to wait until you actually retire to begin taking RMDs or if it follows the same 72 rule regardless of retirement status.

Employment, however, won’t help you delay taking RMDs from any individual retirement accounts outside of your employer retirement account, such as a traditional IRA.

You do not have to take your RMD as one lump-sum payment. The IRS allows you to take out the funds in chunks throughout the year too. As long as the total meets the RMD for the year, you’re in the clear.

You’re also not limited to taking only the RMD amount from your account each year — you can withdraw more than that threshold, if you want.

How do I calculate my required minimum distribution?

Just like filing your taxes, it falls on your shoulders to remember to take the RMD once you reach 72. You can do the math yourself (we’ll explain below) to figure out what your required minimum distribution will be, or you can ask for help from a tax professional or financial adviser.

To calculate your RMD, you need to know exactly how much you’ve got saved up in each account as of Dec. 31 of the previous year. Next, use the table below from the IRS to find your “distribution period” score, which is based on your life expectancy.

To calculate the RMD, divide the retirement account balance by the distribution period that corresponds with your age. Repeat this step for each of your accounts to come up with the total amount you must withdrawal for the year. Remember, your account balance will change and the IRS can update its distribution period figures, so redoing this math each year is crucial to ensure you take out the correct sum.

Let’s say you turned 72 in December 2019 and had a balance of $1 million in your retirement account on Dec. 31. You would then find the distribution period that corresponds to your age in Table III or the Uniform Lifetime Table.

According to the table, your distribution period number is 27.4. When you divide $1 million by 27.4, you get an RMD of $36,496.35. That is the minimum withdrawal you must make from that account by April 1, 2020.

However, if you’re married and your spouse is 10 years or more younger than you and is the sole beneficiary of the retirement account, you will need to find your “distribution period” score on this alternate table by locating the spot where your age and your spouse’s age intersects.

For instance, if you turned 72 this year and had that same $1 million balance in your retirement account on Dec. 31, but were married to a spouse who’d just celebrated their 59 birthday, your distribution period number wouldn’t be 27.4, but rather 28.1 to accommodate the longer expected lifeline of your spouse.

And this would mean you’d need to take an RMD of $35,587.19 from that account for the year, or about $909.16 less than you would if you were single or married to a spouse closer to your own age.

What is the required minimum distribution penalty?

If you don’t take your first RMD by April 1 of the year after you turn 72 or your subsequent annual RMDs by Dec. 31 each year, you’ll be slapped with a 50% excise tax on the amount that was not distributed when you file taxes.

That’s a steep fine when you consider that the top tax rate is 37%, which is why it is so important to accurately calculate your RMDs each year, as the tax applies whether you fail to take any money from the account or simply don’t take enough.

For example, if your RMD was $10,000, but you only took out $5,000, you will be assessed that 50% tax on the $5,000 that you did not withdraw.

Remember, if you delay taking your first RMD until April of the year following your 72 birthday, you’ll be required to take two withdrawals in the same year, one for your 72 year and one for your 72 year, which could raise your gross income and move you into a higher tax bracket. To avoid this, you can opt to make your first withdrawal by Dec. 31 of the year you turn 72, instead of waiting till the following April.

Alternatively, you could reduce your taxable income by making a qualified charitable distribution paid directly from the IRA to a qualified public charity, not a private foundation or donor-advised fund. The charitable distribution can satisfy all or part of the amount you are required to take from you IRA and won’t count as part of your income.

If you withdrawal the RMD first, then donate it, this trick won’t work as the money will count toward your gross income.

What if I have multiple retirement accounts?

If you have more than one retirement account, things can get a little more complicated. You still need to take an RMD, but you don’t have to take one out of each IRA account. Instead, you can total the RMD amounts for all your IRAs and withdraw the whole amount from a single IRA or a portion from two or more.

However, you can’t do the same with most defined contribution plans, like 401(k)s. With these accounts, you must take an RMD from each plan separately. One exception to this rule, though, is 403(b) tax-sheltered annuity accounts. If you have multiple of these accounts, you can total the RMDs and withdrawal from a single account.

If you own several different kinds of retirement accounts with RMDs, it’s probably a good idea to seek advice from a tax or financial adviser professional who can help you make the wisest decision for your finances.

I inherited a traditional IRA — what should I do?

While it’s great to be left the generous gift of a retirement account by a loved one, inheriting an IRA comes with its own set of tricky RMD rules that can vary greatly depending on your relationship with the original owner and how you chose to use the account.

I inherited a traditional IRA from my spouse

If you’re a spouse and sole beneficiary, you have the most flexibility in how to handle your new IRA. You can choose to treat the IRA as your own by designating yourself the account owner and making contributions or by rolling it over into an existing IRA account that you own. If you choose this option, you can follow the standard RMD rules — meaning you can wait until you turn 72 to begin taking money from the account.

Alternatively, you can roll the assets into what’s known as an inherited IRA. With this kind of account you can start taking distributions immediately and not face the typical 10% early-withdrawal penalty the IRS applies if you’re under age 59½.

To calculate the RMD you’ll need to take with this kind of IRA, use the IRS’s Single Life Expectancy Table, which has different distribution period figures than the standard table you would use if you were the original account owner. You can opt to use your own age for these calculations or your partner’s age as of their birthday in the year they died, reducing life expectancy by 1 each subsequent year.

But you may not need to take RMDs right away depending on how old your spouse was when they died. If they were older than 72 then you’ll need to start withdrawing funds by Dec. 31 of the year following their death. But if they were younger, the IRS lets you leave the money in the account until your spouse would have reached 72.

I inherited a traditional IRA — but I’m not a spouse

Beneficiaries who are not a spouse are required to move the assets into an inherited IRA and begin taking RMDs regardless of the original owner’s age. If the person passed before age 72 you can opt to withdraw the full balance within the five years following the year of their death. Or you can prolong the payouts by taking RMDs annually based on your age, reducing beginning life expectancy by 1 for each subsequent year, using the Single Life Expectancy Table.

If the original owner was 72 or older, how you calculate your RMDs depends on whether you or the deceased was younger. The lowest age is what you’ll base your life expectancy figure found in the Single Life Expectancy Table on, though you will need to reduce beginning life expectancy by 1 every subsequent year.

I inherited a Roth IRA — what should I do?

The original owner of a Roth IRA never has to take RMDs but that can change when the account passes to a beneficiary. A surviving spouse who inherits a Roth IRA can opt to treat the account as their own, meaning they won’t ever need to take an RMD, if they contribute to the account or roll into an existing Roth IRA.

Non-spouse beneficiaries, however, do have to take RMDs from an inherited Roth IRA, following the same rules as those who inherit traditional IRAs where the owner passed before reaching age 72.

That means these beneficiaries can either withdraw the entire balance from the Roth IRA within the five years following the year of the original owner’s death or begin taking RMDs based on your life expectancy, as outlined in the Single Life Expectancy Table, by the end of the year following the owner’s death.

The final word on required minimum distributions

Whether the retirement account was yours to begin with or you’ve inherited it, calculating the correct RMD amount to withdraw from it every year can be tricky, but spending the extra time to make sure you understand the rules and check your math can pay off big time when you’re not losing 50% of your savings to Uncle Sam in the form of a tax penalty.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.