Parting with your savings in retirement can be hard to do. But if you are 73 and have a traditional IRA or 401(k) you have no choice, thanks to required minimum distributions, or RMDs.
With inflation rising — it reached 3.1% in March in the most recent consumer price index — gasoline prices increasing and stocks fluctuating, withdrawing from your retirement savings accounts can cause anxiety.
This is particularly true if you are among the retirees increasingly relying on tax-deferred accounts like 401(k)s and IRAs to get by, reports CBS News. Withdraw too much and you may outlive your money. Withdraw too little and you may be on the hook for a penalty.
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That’s why it’s important to know the correct withdrawal amount. If you have $1 million in your traditional tax-deferred retirement savings accounts, here’s the total RMDs you’re required to take.
How Much RMD Is Required If You Have A $1 Million Nest Egg
RMDs are required for most tax-deferred retirement savings accounts including 401(k)s, IRAs and 403(b)s, according to the IRS. The first of these withdrawals must be taken by April 1 of the year following your 73rd birthday and every year thereafter.
The amount you’re required to withdraw is calculated based on a formula that includes your account balance and a life expectancy factor provided by the IRS known as the uniform lifetime table. The formula, according to the IRS, is the following:
Account Balance ÷ Life Expectancy Factor = RMD
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Here’s how much you will be required to withdraw at different ages if you have $1 million in tax-deferred retirement accounts:
At age 73, your life expectancy factor is 26.5 and as a result you are required to withdraw $37,736.
At age 75, your life expectancy factor is 24.6 and as a result you are required to withdraw $40,650.
At age 80, your life expectancy factor is 20.2 and as a result you are required to withdraw $49,505.
As you can see the older you get the lower your life expectancy factor is and the more you’re required to withdraw. The IRS wants to get paid, which is why the withdrawal rate increases.
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Don’t Miss An RMD
The IRS doesn’t care if the market is down or inflation is up, you’re required to take an RMD every year after you turn 73. If you miss an RMD you are subject to a 25% penalty of the amount you were supposed to withdraw. This is a significant reduction thanks to the Secure Act 2.0; the penalty used to be 50%.
Keep in mind that RMDs are treated as ordinary income which could push you into a higher tax bracket, increase your Medicare premiums or result in a tax on your Social Security payments.
Plus if you have multiple accounts it can get complicated. While you can aggregate IRA RMD withdrawals across accounts, 401(k) withdrawals have to be …
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