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As you approach retirement, your focus often shifts from growing your nest egg to making it last. One rule that can catch even seasoned savers off guard is the IRS’s Required Minimum Distribution (RMD) mandate. RMDs aren’t just technical — they’re critical to your retirement income strategy and can have major tax and cash flow implications if not handled properly.
Whether you’re nearing the age threshold or planning ahead, understanding how RMDs work for your 401(k) can help you avoid costly mistakes and make the most of your hard-earned savings. Let’s understand 401(k) required minimum distributions.
What Are 401(k) Required Minimum Distributions (RMDs)?
Required Minimum Distributions (RMDs) are the minimum amounts the IRS requires you to withdraw annually from certain retirement accounts, including 401(k)s, traditional IRAs, and other workplace retirement plans. The rule exists because the government wants to eventually collect taxes on the pre-tax dollars you’ve saved over your working life. RMDs ensure that you can’t defer taxes on your retirement savings indefinitely.
When Do 401(k) Required Minimum Distributions Start?
As of 2025, most individuals must begin taking RMDs from their 401(k) accounts by April 1 of the year following the year they turn 73. This age threshold was recently raised from 72, so it’s important to check the current IRS guidelines or consult your plan administrator if you’re approaching that milestone.
There are some exceptions: for example, if you’re still working for the employer sponsoring your 401(k) and you don’t own more than 5% of the company, you may be able to delay RMDs until you retire.
How Are 401(k) Required Minimum Distributions Calculated?
The IRS Life Expectancy Table
Each year, your RMD is calculated by dividing your 401(k) account balance as of December 31 of the previous year by a life expectancy factor published by the IRS. These factors are found in the IRS’s Uniform Lifetime Table and are based on your age. The older you get, the higher the percentage of your account you’ll be required to withdraw.
For example:
If you turn 73 in 2025 and your 401(k) balance was $500,000 at the end of 2024, you’d use the IRS table to find your factor (let’s say it’s 26.5). Your RMD for the year would be $500,000 ÷ 26.5 ≈ $18,870.
Multiple 401(k)s and RMDs
If you have more than one 401(k) from different employers, you must calculate and take an RMD from each account separately. Unlike IRAs, you cannot aggregate RMDs across multiple 401(k)s. This makes tracking each account and its required withdrawal crucial.
Penalties for Missed or Insufficient 401(k) Required Minimum Distributions
Missing an RMD or withdrawing too little used to result in a hefty penalty — 50% of the amount you failed to withdraw. However, recent changes have reduced this penalty to 25%, and in some cases, as low as 10% if you promptly correct the mistake. Still, the IRS expects you to take RMDs seriously, and penalties can add up quickly if you’re not careful.
How to Correct a Missed RMD
If you miss 401(k) Required Minimum Distributions, act quickly: take the required withdrawal as soon as possible, and file IRS Form 5329 to request a penalty waiver. The IRS is often lenient if you correct the error promptly and explain the oversight.
Strategies for Managing RMDs
Timing Your Withdrawals
You can take your RMD as a lump sum or spread it out over the year in monthly or quarterly installments. There’s no advantage to waiting until the last minute, but some people prefer to let their money grow as long as possible. Others prefer regular withdrawals to help with budgeting.
Remember the tax impact: RMDs are treated as ordinary income, so large withdrawals could push you into a higher tax bracket. Spreading withdrawals throughout the year may help manage your tax liability and cash flow.
Reducing RMD Impact
If you want to minimize the tax bite from RMDs, consider these tactics:
- Roth Conversions: Converting some of your traditional 401(k) or IRA funds to a Roth IRA before RMDs begin can reduce your required withdrawals (Roth IRAs are not subject to RMDs for the original owner).
- Qualified Charitable Distributions: If you’re charitably inclined and over age 70½, you can direct up to $100,000 per year from your IRA to a qualified charity, satisfying your RMD and avoiding income tax on the amount.
- Strategic Withdrawals Before RMD Age: Taking withdrawals in low-income years before RMDs start can reduce future required withdrawals and smooth out your tax bill.
Special Considerations for 401(k) Required Minimum Distributions
Still Working Exception
If you’re still working at age 73 (and don’t own more than 5% of the company), you may be able to delay RMDs from your current employer’s 401(k) until you retire. This exception doesn’t apply to IRAs or 401(k)s from previous employers, so it’s important to understand which accounts are affected.
Beneficiaries and Inherited 401(k)s
If you inherit a 401(k), the RMD rules depend on your relationship to the original account holder and when they passed away. Non-spouse beneficiaries usually must withdraw the entire balance within 10 years, while surviving spouses have more flexibility. Always consult a tax advisor or plan administrator for guidance on inherited accounts.
How Beem Can Help With RMD Planning
Staying on top of RMDs can feel overwhelming, especially if you have multiple accounts or complex finances. Beem’s digital tools can make RMD management much easier:
- Budget Planner for RMD Tracking: Beem lets you input your 401(k) balances, calculates estimated RMDs, and tracks deadlines so you never miss a required withdrawal.
- Reminders and Projections: Set up automatic reminders for RMD deadlines and use Beem’s forecasting tools to see how withdrawals will affect your retirement income over time.
- Holistic Retirement Planning: Integrate RMDs into your broader retirement strategy, ensuring your withdrawals align with your spending needs, tax situation, and legacy goals.
With Beem, you can approach RMDs proactively, avoid penalties, and make smarter decisions about your retirement income.
Conclusion
Required Minimum Distributions are a key part of retirement planning, and understanding the rules can help you avoid penalties and optimize your income. You can stay compliant with IRS regulations and maximize your retirement savings by tracking your accounts, timing your withdrawals, and using digital tools like Beem. Don’t let RMDs catch you off guard — plan ahead, stay organized, and enjoy the retirement you’ve worked so hard to build.
With careful planning and the help of digital tools like Beem, you can take control of your retirement savings and build a more secure financial future. It is a smart wallet app with numerous features, from cash advances to help with budgeting and even tax calculations. In addition, Beem’s Everdraft™ lets you withdraw up to $1,000 instantly and with no checks. Download the app here.
FAQs On Understanding 401(k) Required Minimum Distributions
When must I take my first RMD from a 401(k)?
You must take your first RMD by April 1 of the year after you turn 73. After that, RMDs must be taken by December 31 each year.
Can I aggregate RMDs from multiple 401(k) accounts?
No, you must calculate and withdraw the RMD from each 401(k) separately. Aggregation is only allowed for traditional IRAs.
Are Roth 401(k)s subject to RMDs?
Yes, Roth 401(k)s are subject to RMDs during your lifetime, but you can avoid them by rolling the balance into a Roth IRA, which has no RMDs for the original owner.
What if I work past age 73?
If you’re still working and don’t own more than 5% of the company sponsoring your 401(k), you can delay RMDs from that employer’s plan until you retire.
How does Beem help me manage RMDs?
Beem tracks your RMD deadlines, calculates withdrawal amounts, sends reminders, and helps you plan withdrawals in the context of your overall retirement strategy.
