One of the biggest perks of investing in a tax-advantaged retirement account like a 401(k) or traditional IRA is that your contributions are tax-deductible upfront.
Uncle Sam will eventually get his money, though, so you’ll need to pay income taxes on your withdrawals. To prevent people from avoiding taxes altogether by never pulling money from their accounts, the IRS imposes required minimum distributions (RMDs) starting at age 73.
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Exactly how much you’ll need to withdraw each year will depend on your age and account balance. Here’s what your RMDs might look like if you have $1 million in savings.
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To determine your RMD, the IRS uses a figure called your life expectancy factor (LEF). You’ll divide your account balance at the end of the previous year by your LEF, and the result is your RMD.
So, for example, say you had $1 million in your retirement account at the end of 2024. Depending on your age, this is what your RMD for this year would look like (rounded to the nearest dollar).
Age
Life Expectancy Factor (LEF)
Required Minimum Distribution (RMD)
73
26.5
$37,736
74
25.5
$39,216
75
24.6
$40,650
76
23.7
$42,194
77
22.9
$43,668
78
22.0
$45,455
79
21.1
$47,393
80
20.2
$49,505
Data source: IRS.
If you’re 73 years old, then, dividing $1 million by 26.5 will give you an annual RMD of $37,736. If you don’t withdraw your full RMD, you’ll face a 25% penalty, or a 10% penalty if you make the full withdrawal within two years.
RMDs can seem complicated and confusing, but a few quick calculations can ensure you’re withdrawing enough to avoid penalties — and keep more of your hard-earned savings.
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