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What are the Required Minimum Distribution (RMD) rules for 401(k)s?

Retirement accounts grow from tax-deductible contributions during employment. After retirement, account withdrawals, or distributions, then become subject to income tax requirements. To many entering retirement, it would make sense to let these accounts sit, accruing tax-deferred value to further build their savings and/or inheritance to pass on. what are the required minimum distrubution rules for 401ks

The IRS understood this possibility and established required minimum distribution (RMD) rules to prevent account holders from circumventing their tax liability. These rules require account holders to start making annual withdrawals from their retirement accounts when they turn 72 years old.

As an essential part of ensuring a comfortable retirement, understanding how RMDs will affect your 401(k) account can help you strategically plan your savings and investments. This article will detail how RMDs are calculated and options to discuss with your financial advisor to maximize the return on your 401(k).

Learn more about the changes caused by the SECURE Act. Find out what the new regulations did to open 6 estate planning "wormholes" in our downloadable PDF.

What Accounts Have Required Minimum Distributions?

A 401(k) account is an employer-sponsored retirement account that allows for tax-deductible contributions, often with employer matching. The account grows through the investment you choose. Contributions are not reduced by taxes, so more money is put in to grow.

However, the IRS needs to tax income at some point. If they do not take tax on the front end, they will take it when you start withdrawing distributions in retirement. Like 401(k)s, the following accounts are subject to RMDs to ensure the government receives regular taxes:

  • Other employer-sponsored plans, including 403(b), 457(b), and profit-sharing plans
  • Traditional IRAs
  • IRA-based plans, including SIMPLE and Rollover IRAs, SEPs and SARSEPs

Roth IRAs are not subject to RMDs because, unlike the others, the contributions to the plan are taxed.

When Does the RMD for My 401(k) Start?

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed in 2019. Before it was enacted, the first distribution had to be taken by April 1st the year after you turned 70 ½ years old. 

The SECURE Act changed the threshold to 72 years old. If you turned 72 in 2021, your first RMD would need to be taken out by April 1, 2022. After that, an RMD would need to be taken by December 31 each year.

Waiting too long to take your first distribution may put you at a tax disadvantage. The initial RMD has to be withdrawn by April 1, while the second is due on December 31 that same year. Taking both in the same year could result in a higher reported income and potentially a higher tax bill.

RMD Exceptions and Extensions for 401(k) Accounts

Unlike IRAs and IRA-based plans, you may be able to postpone your RMDs on an employer-sponsored 401(k). If you still work for the company sponsoring the 401(k) account, you will not have to take your first distribution when you turn 72. If you leave the company after turning 72 years old, you will have to begin RMDs immediately.

You must confirm the details of your company’s 401(k) plan to make sure it allows RMD delays, as there are exceptions. Furthermore, if you own at least 5 percent of the business, you will still have to begin distributions after 72 whether you retire or not.

Discuss the consequences of timing your RMD with a financial professional. Depending on your goals, you may be able to delay making distributions without suffering tax penalties.\]


The Coronavirus Aid, Relief, and Economic Security (CARES) Act stopped the 2020 required minimum distributions because of COVID. The extension has not been extended for 2021, so retirees who turn 72 this year will have to take their RMDs to avoid paying penalties.

How Is the RMD from My 401(k) Calculated?

The required minimum distribution for 401(k)s depends on the account’s year-end balance and your age. To calculate your 2022 RMD, you use your age and 401(k) account balance on December 31, 2021.

In the RMD calculation, a life expectancy factor is applied to each year of age. Your total 401(k) balance is divided by the factor to find your RMD for the year. The IRS updates two tables, defined by your unique circumstances, that provide the factor to make the calculation:

  • Joint and Last Survivor Table: Use this when a spouse is a 401(k)’s only beneficiary and he/she is over 10 years younger than you.
  • Uniform Lifetime Table: Use this table when a spouse is not a 401(k)’s only beneficiary or they are under 10 years younger than you. This is the most common situation.

Let’s say you are 75 years old with a 401(k) worth $200,000 on December 31. 

According to the Uniform Lifetime Table, your age has a factor of 22.9. The equation would be 200,000/22.9 to produce your RMD of $8733 for the year. The IRS would then tax that amount at the appropriate income tax rate.

The RMD is just a lower limit for your distribution, and you are welcome to take more out at one time. However, doing so could move you up a tax bracket and into a larger bill. Also, the excess money in a larger withdrawal cannot go toward a later year’s RMD.

Learn more about the "domino effect" caused by changes to taxes, trusts, gifting limits and more. Find out what the new regulations did to open 6 estate planning "wormholes" in our downloadable PDF.

What Are the Rules If I Inherit a 401(k)?

Inherited 401(k) accounts also carry required minimum distributions. However, the particular requirements for how they are to be taken out can vary depending on whether the beneficiary is a spouse or non-spouse. Typically, the beneficiary is automatically the spouse, but if you are single, your 401(k) can go to your children or other relatives.

When you acquire a 401(k) from your spouse, you can either roll it over to your own retirement account (401(k) or IRA) or into an inherited IRA. Inherited IRAs have RMDs based on a third IRS table, the Single Life Expectancy Table.

The SECURE Act also affected estate plans. Prior to its passage, if you inherited a 401(k) from a non-spouse, the assets were rolled into an inherited IRA, which had to be withdrawn over a 5-year period. 

The new law changed this to a 10-year distribution period. There are exceptions, however, for minor children and those with disabilities or chronic illnesses.

Understanding the details of the 401(k) plan is crucial, as some companies have plan-specific rules that could limit how and when distributions are pulled.

What Happens If I Don’t Take My Scheduled RMD?

The standard penalty for missing the full December 31 RMD deadline is a 50 percent fee on the money you failed to withdraw. The account holder must file IRS Form 5329 with their federal tax return to make up the difference. This form, with an explanation letter, can also be used to dismiss the penalty if the failure was through reasonable error and appropriate steps are taken to rectify it.

Can I Avoid an RMD on My 401(k)?

To bypass your RMD for your 401(k) or Roth 401(k), you can roll the balance over to a Roth IRA. The funds will grow tax-deferred and after five years, you can take tax-free distributions. You will have a larger tax bill the first year but depending on how you want to schedule your withdrawals, it could yield a better return.

Learn how your spouse and heirs could have been negatively impacted if your estate plan hasn't been updated to reflect the new laws. Find out what the new regulations did to open 6 estate planning "wormholes" in our downloadable PDF.

Talk to a Financial Advisor

Smart retirement strategies begin with a discussion with an experienced financial advisor. The RMD rules for 401(k)s are complex, and various state laws and company plan requirements add even more considerations. An accurate assessment of your financial goals can help you identify the best investment options and avoid unexpected drawbacks.

Required minimum distributions are a small yet consequential component of retirement preparation. The experts at NextGen Wealth take a comprehensive approach in assessing your financial needs to develop a plan that achieves your retirement goals. Contact our offices for a free financial assessment or to discuss how we can help you maximize your investments for a healthy retirement.

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About the Author

Aurtho Clint Haynes, CFPThis article was written by Clint Haynes, CFP®. Clint is a Certified Financial Planner® and Founder of NextGen Wealth. You can learn more about Clint by reading his full bio here.

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