Retirement is a time to enjoy the fruits of your labor, but for many, it also comes with a significant financial responsibility: Required Minimum Distributions (RMDs). If you're turning 73, this is a crucial topic you need to understand. Failing to take your RMDs can lead to substantial penalties from the IRS, so let's dive in and figure out exactly how much you have to withdraw from your 401(k) at age 73.
The Ultimate Guide to 401(k) RMDs at Age 73
Hey there, future retiree! Are you ready to unravel the mystery of your 401(k) withdrawals now that you're hitting the big 7-3? Don't worry, it's not as complicated as it might seem. This guide will walk you through everything you need to know, step by step, so you can confidently manage your retirement savings and avoid any unwelcome surprises from the IRS.
Let's begin this journey together to ensure your retirement years are filled with peace of mind, not tax headaches!
Step 1: Understanding What an RMD Is and Why It Matters
First things first, what exactly is an RMD?
A Required Minimum Distribution (RMD) is the minimum amount of money you must withdraw from certain retirement accounts each year once you reach a specific age. The IRS mandates these withdrawals because your contributions to these accounts (like traditional 401(k)s) were made with pre-tax dollars, meaning the government hasn't yet collected its share of taxes. Think of it as the IRS finally wanting its piece of the pie!
Why is age 73 important? Thanks to the SECURE 2.0 Act, the age at which RMDs begin has shifted. For those who turned 72 in 2023 or later (i.e., those who turn 73 in 2024 or later), your first RMD is generally required in the year you turn 73. If you were born in 1960 or later, this age will eventually increase to 75.
What happens if you don't take your RMD? This is where it gets serious. Failing to take your RMD on time or taking less than the required amount can result in a 25% excise tax on the amount you should have withdrawn. Ouch! This penalty can be reduced to 10% if you correct the error promptly within two years. So, it's critical to get this right!
Step 2: Identifying Which Accounts Are Subject to RMDs
Not all retirement accounts are created equal when it comes to RMDs. It's important to know which of your accounts will trigger these mandatory withdrawals.
Accounts Subject to RMDs at Age 73:
Traditional 401(k)s: This is the primary focus of our discussion.
Traditional IRAs
SEP IRAs
SIMPLE IRAs
403(b) plans
457(b) plans (governmental plans)
Accounts Generally Exempt from RMDs (while you're alive):
Roth IRAs: These accounts are funded with after-tax money, so the distributions in retirement are typically tax-free and not subject to RMDs for the original owner.
Roth 401(k)s: Similar to Roth IRAs, the SECURE 2.0 Act eliminated RMDs for Roth 401(k) accounts for the original owner, aligning them with Roth IRAs. This is a significant change!
A Special Note on Employer-Sponsored Plans: If you're still working for the company that sponsors your 401(k) after you turn 73, and you don't own more than 5% of the company, you may be able to delay taking RMDs from that specific 401(k) until you actually retire. However, this exception only applies to the plan you are currently employed with and does NOT apply to IRAs or 401(k)s from previous employers. Always check with your plan administrator for the specifics.
Step 3: Gathering the Necessary Information for Calculation
Before you can calculate your RMD, you need two key pieces of information:
Your 401(k) Account Balance: You need the fair market value of your 401(k) account as of December 31 of the previous year. For example, to calculate your RMD for 2025 (the year you turn 73), you'll need your account balance as of December 31, 2024. Your plan administrator or custodian should provide this information on your year-end statement.
Your Life Expectancy Factor: The IRS publishes tables that provide a "life expectancy factor" based on your age. For most individuals, the Uniform Lifetime Table is used. This table assumes you have a beneficiary, and it helps spread your distributions over a longer period.
Where to find the table? You can typically find this in IRS Publication 590-B, "Distributions from Individual Retirement Arrangements (IRAs)," or by searching online for "IRS Uniform Lifetime Table." Many financial institutions also provide quick reference tables.
Here's a snippet of the Uniform Lifetime Table for ages around 73 (as of current IRS guidance, but always verify the most recent table):
Step 4: Calculating Your 401(k) RMD: The Simple Formula
Once you have your account balance from December 31 of the prior year and your life expectancy factor, the calculation is straightforward.
The RMD Formula:
Let's walk through an example:
Scenario: You turned 73 in 2025. Your 401(k) balance as of December 31, 2024, was $500,000.
Your Age: 73
Life Expectancy Factor for Age 73 (from the table above): 26.5
Calculation: $ \text{RMD for 2025} = \frac{$500,000}{26.5} \approx $18,867.92 $
Therefore, you would need to withdraw approximately $18,867.92 from your 401(k) by the RMD deadline for 2025.
Important Consideration: If you have multiple 401(k)s, you must calculate the RMD for each 401(k) account separately. However, you are generally allowed to withdraw the total RMD amount from one or more of your 401(k) accounts. This flexibility can be helpful for tax planning. For IRAs, you can aggregate RMDs from all your traditional IRAs and take the total from any one or combination of them.
Step 5: Understanding RMD Deadlines
There are critical deadlines to adhere to for your RMDs to avoid penalties.
Your First RMD (Initial RMD):
For the year you turn 73, you have a special deadline: you can delay taking your first RMD until April 1st of the year following the year you turn 73.
Example: If you turn 73 in 2025, your first RMD for 2025 is due by April 1, 2026.
Word of Caution: While this delay is allowed, it means you'll have to take two RMDs in the same tax year (your first RMD by April 1st, and your second RMD for that new year by December 31st). This could push you into a higher tax bracket, so consider the tax implications carefully. Many people choose to take their first RMD in the year they turn 73 to spread out the tax burden.
Subsequent RMDs:
For all years after your first RMD, the deadline is December 31st of each year.
Don't Procrastinate: It's generally a good idea not to wait until the last minute. If you miss the deadline, even by a day, you could still be subject to the hefty penalty.
Step 6: How to Take Your RMDs
Once you know the amount and the deadline, how do you actually get the money out?
Contact Your Plan Administrator/Custodian: Your 401(k) provider (e.g., Fidelity, Vanguard, Schwab) often has systems in place to help you with RMDs. Many can even calculate the amount for you and set up automated withdrawals. This is often the easiest way to ensure compliance.
Methods of Withdrawal:
Cash Withdrawal: You can simply request a cash distribution, which will be deposited into your bank account.
"In-Kind" Transfer to a Taxable Account: If you don't immediately need the cash, you might be able to transfer shares of your investments directly from your 401(k) to a taxable brokerage account. While this fulfills your RMD, you will still owe taxes on the value of the assets transferred, just as if you had taken cash. This allows your investments to remain invested outside the retirement account.
Selling Investments: You might need to sell some of your investments within your 401(k) to generate the cash needed for the RMD. Consider selling shares proportionally to maintain your desired asset allocation.
Tax Withholding: Remember, RMDs from pre-tax 401(k)s are generally taxed as ordinary income. You can choose to have taxes withheld from your distribution. If you don't, be sure to set aside funds to cover the tax liability when you file your annual income tax return. Under-withholding can lead to its own penalties.
Step 7: Tax Implications and Planning Strategies
Taking RMDs directly impacts your taxable income. Here are some things to consider:
Ordinary Income: RMDs are typically taxed as ordinary income at your current marginal tax rate. This means they can increase your overall taxable income for the year, potentially pushing you into a higher tax bracket.
Impact on Social Security and Medicare Premiums: Increased taxable income from RMDs could also impact the taxation of your Social Security benefits and the premiums you pay for Medicare (known as IRMAA – Income-Related Monthly Adjustment Amount).
Strategies to Consider Before RMDs:
Roth Conversions: In the years leading up to your RMD age, you might consider converting some of your traditional 401(k) or IRA funds to a Roth IRA. You'll pay taxes on the converted amount at your current tax rate, but future qualified distributions from the Roth IRA will be tax-free and not subject to RMDs. This can be a powerful way to manage your future tax burden.
Qualified Charitable Distributions (QCDs): If you are charitably inclined and are age 70½ or older, you can make a Qualified Charitable Distribution (QCD) directly from your IRA to an eligible charity. These distributions count towards your RMD, and they are excluded from your taxable income, offering a great tax benefit. While QCDs primarily apply to IRAs, if you roll your 401(k) into an IRA, you can then utilize this strategy.
Strategic Withdrawals Before RMD Age: If you have significant balances in your tax-deferred accounts, you might consider taking some withdrawals before RMDs kick in. This can help "smooth out" your income in retirement and potentially keep you in lower tax brackets.
Professional Advice: Tax laws and retirement rules can be complex and change. It's highly recommended to consult with a qualified financial advisor and/or tax professional to create a personalized RMD strategy that aligns with your overall financial plan and minimizes your tax liability.
Frequently Asked Questions (FAQs) about 401(k) RMDs at Age 73
Here are 10 common "How to" questions related to RMDs at age 73, along with quick answers:
How to find my 401(k) account balance for RMD calculation?
Quick Answer: Check your year-end statement (typically December 31st of the prior year) from your 401(k) plan administrator or custodian. You can also log into your online account or contact their customer service.
How to determine my RMD life expectancy factor?
Quick Answer: Use the IRS Uniform Lifetime Table for your age. You can find this in IRS Publication 590-B or by searching online. For age 73, the factor is currently 26.5.
How to calculate my RMD if I have multiple 401(k)s?
Quick Answer: Calculate the RMD for each 401(k) account separately. While you can take the total RMD from any one or combination of your 401(k)s, each account's RMD must be calculated individually.
How to take my first RMD by the deadline?
Quick Answer: You can take your first RMD for the year you turn 73 anytime during that calendar year, or you can delay it until April 1st of the following year. Contact your plan administrator to initiate the withdrawal.
How to avoid penalties for not taking RMDs?
Quick Answer: Ensure you withdraw the full calculated RMD amount by the annual deadline (December 31st for subsequent RMDs, April 1st for the initial delayed RMD). Set reminders and consider automated withdrawals.
How to pay taxes on my 401(k) RMDs?
Quick Answer: RMDs are taxed as ordinary income. You can elect to have federal and state taxes withheld from your distribution by your plan administrator, or you can pay estimated taxes throughout the year.
How to delay RMDs if I'm still working?
Quick Answer: If you are still employed by the company sponsoring your 401(k) and are not a 5% owner, you may be able to delay RMDs from that specific plan until you retire. Confirm with your plan administrator. This exception does not apply to IRAs or 401(k)s from former employers.
How to reduce my future RMDs and potential tax burden?
Quick Answer: Consider strategic Roth conversions in years prior to RMD age, and if eligible, look into Qualified Charitable Distributions (QCDs) from an IRA (after rolling over your 401(k) to an IRA).
How to handle an inherited 401(k) and RMDs at age 73?
Quick Answer: Rules for inherited 401(k)s vary significantly by beneficiary type (spouse vs. non-spouse) and when the original owner died. Most non-spouse beneficiaries are subject to a 10-year rule, often with annual RMDs within that period if the original owner was already taking them. Seek professional guidance.
How to get professional help with my RMDs?
Quick Answer: Consult with a financial advisor and/or a tax professional. They can provide personalized advice, help with calculations, and assist with tax planning strategies to optimize your retirement income.
