Do U.S. Retirement Accounts Also Have a "Minimum Withdrawal Rule"? Understanding How RMDs Are Calculated and When They Start
Many people spend years diligently putting money into 401(k)s, Traditional IRAs, and other retirement accounts, enjoying the benefit of tax-deferred growth — but few realize that once you reach a certain age, the government requires you to withdraw a minimum amount every year. This is called an RMD (Required Minimum Distribution). Failing to withdraw it, or withdrawing too little, can result in a significant penalty. Here's a breakdown of how RMDs work and some common misunderstandings.
At what age do you need to start withdrawing? It depends on your birth year
▸ Born 1951–1959: RMDs begin the year you turn 73
▸ Born 1960 or later: RMDs begin the year you turn 75
▸ Your first RMD can be delayed until April 1 of the following year, but if you delay it, you'll need to take "two" RMDs that year (one for the prior year, one for the current year), which could push you into a higher tax bracket
How is the RMD amount calculated?
▸ Take your account balance as of December 31 of the prior year and divide it by the "life expectancy factor" published by the IRS (the Uniform Lifetime Table)
▸ For example: the factor for age 73 is approximately 26.5, so a $500,000 account balance ÷ 26.5 ≈ $18,868, which is the minimum amount you must withdraw that year
▸ The older you get, the smaller the factor becomes, meaning the "percentage you're required to withdraw" increases each year
Can you delay withdrawals if you're still working?
▸ For a Traditional IRA, there's no exception — once you reach the required age, you must begin withdrawing
▸ For an employer-sponsored retirement plan (such as a 401(k)), if you're still working at that company and don't own more than 5% of it, you can delay that account's RMD until the year you actually retire
Penalties for not withdrawing, or withdrawing too little, are steep
▸ Any amount not withdrawn by the deadline is subject to a 25% excise tax
▸ If corrected and the missed amount is withdrawn within 2 years, the penalty can be reduced to 10%, and Form 5329 must be filed
USCPA Luo Xia reminds you: the age RMDs start, how they're calculated, and the exceptions for delaying withdrawals all depend on your birth year and account type — getting the calculation wrong or forgetting to withdraw can easily lead to penalties. It's recommended to consult a licensed, professional CPA early on for your retirement account planning.
If you have any other questions or need further assistance,
please contact us at USCPA Luo Xia +886 980919600
or email: ustaxproservice@gmail.com
You're also welcome to visit our company website: https://www.ustaxproservice.com
(USTAX Service LLC)