Required Minimum Distributions Before December 31: The One Division and the Deadline Traps

• Who has to take one
• The calculation
• The deadline traps
• If you miss it
• Budgeting the withdrawal
• Free tools

If you have money in a traditional IRA or 401(k) and you have reached RMD age, the IRS expects a minimum withdrawal each year. Missing it is one of the more expensive mistakes in personal finance, and the math is a single division.

§Who has to take one

Under current US rules, required minimum distributions start at age 73 for people born 1951 to 1959, and at 75 for people born in 1960 or later. Roth IRAs have no RMDs for the original owner. Inherited accounts follow separate rules.

§The calculation

RMD for this year = account balance on December 31 of last year / life expectancy factor for your age this year.

Most owners use the IRS Uniform Lifetime Table. Some factors:

• Age 73: 26.5
• Age 75: 24.6
• Age 80: 20.2

Example: a $400,000 IRA balance at the end of last year, age 75 this year: $400,000 / 24.6 = about $16,260 to withdraw by December 31.

If you have several traditional IRAs, you calculate each one but can take the total from any of them. 401(k) plans are different: each plan’s RMD generally comes out of that plan.

§The deadline traps

1. The first-year delay. Your first RMD can wait until April 1 of the following year, but then you take two in that calendar year, which can push you into a higher tax bracket.
2. Late-December processing. Custodians get busy; requesting the withdrawal in early December leaves room for problems.
3. Withholding. Federal tax is often withheld from the distribution; decide the amount so April has no surprise.

§If you miss it

The penalty is 25% of the amount not taken, reduced to 10% if corrected within the correction window. Take the missed amount as soon as you notice and look at Form 5329, which also has a way to request a waiver for reasonable cause.

§Budgeting the withdrawal

Many retirees take RMDs monthly or quarterly instead of once, so the money arrives like a paycheck. Put the planned amount in your retirement budget as income, with the tax set aside next to it.

§Free tools

• Retirement withdrawal calculator: https://smartbudgetsheets.surge.sh/calculators/retirement-withdrawal-calculator/?utm_source=nostr
• Savings goal calculator: https://smartbudgetsheets.surge.sh/calculators/savings-goal-calculator/?utm_source=nostr
• Debt Payoff Planner, up to 8 debts (Payhip): https://payhip.com/b/PtBLU?utm_source=nostr
• 42 free budget templates, pay what you want ($0 is fine): https://smartbudgetsheet.gumroad.com/l/ngpkrb?utm_source=nostr

General information, not financial advice. Figures are rounded examples.