What is the minimum you're required to withdraw from a $500,000 retirement account?
Summary
Retirees with tax-deferred accounts like traditional IRAs and 401(k)s must take required minimum distributions (RMDs) each year starting at age 73. The RMD amount depends on the account balance and the retiree’s age, with withdrawals increasing as life expectancy factors decrease.Key Facts
- Required minimum distributions (RMDs) apply to most traditional retirement accounts.
- Retirees must start RMDs by age 73 under current IRS rules.
- The RMD amount is calculated by dividing the account balance by a life expectancy factor from IRS tables.
- For a $500,000 balance, the RMD at age 73 is about $18,868.
- The RMD increases as retirees get older because the life expectancy factor gets smaller.
- RMDs are taxed as ordinary income and can affect tax brackets, Social Security taxes, and Medicare costs.
- Missing an RMD can lead to a penalty up to 25% of the amount not withdrawn.
- Withdrawals from multiple IRAs can be combined, but 401(k) withdrawals are usually separate, making planning important.
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