Accumulating $1 million in a retirement portfolio, including vehicles like traditional Individual Retirement Accounts (IRAs), 401(k)s, or 403(b) plans, represents a significant savings achievement. However, it is critical for account holders to understand that these funds cannot remain indefinitely sheltered from withdrawal.
The Internal Revenue Service (IRS) enforces a regulation whereby individuals must initiate distributions from these tax-deferred accounts once they reach the age of 73. These mandated withdrawals, known as required minimum distributions (RMDs), have both withdrawal minimums and tax consequences applied to them.
For example, if an individual turns 73 years old in the calendar year 2025, the deadline for the initial RMD is April 1 of the following year, that is, 2026. Subsequently, the second RMD for that same individual must be distributed by December 31, 2026. For those who are already beyond age 73 at the start of a given year, the annual RMD deadline is uniformly December 31.
The determination of the RMD amount each year is governed by a straightforward formula provided by the IRS. The calculation requires two key inputs: the balance of the retirement account as of December 31 from the preceding year, and a life expectancy divisor which corresponds to the account holder's age and is drawn from an IRS-provided table.
To illustrate, an individual reaching the age of 73 in 2025 is assigned a life expectancy factor of 26.5 years according to this table. Taking a retirement account balance of $1 million, the RMD calculation for 2026 would involve dividing the account balance by the life expectancy factor: $1,000,000 รท 26.5, resulting in approximately $37,736 as the minimum amount that must be withdrawn.
It is important to note that this required distribution is not static over time. As the account holder ages, the life expectancy factor decreases, reflecting a shorter expected remaining lifespan, which increases the RMD percentage relative to the remaining account value. Concurrently, as withdrawals reduce the account balance, the dollar amount of the RMD will vary annually. Consequently, RMDs are recalculated each year based on the updated account value and age-specific divisor.
For individuals holding multiple retirement accounts, the IRS allows for aggregation of the balances when calculating the total RMD amount. Thus, the combined value of all traditional IRA, 401(k), and 403(b) accounts determines the overall RMD requirement. Notably, this total RMD may be distributed from one or multiple accounts at the account holder's discretion.
While custodians or financial institutions that administer accounts often provide assistance in determining the correct RMD amounts, the ultimate responsibility lies with the account owner to ensure that the minimum distribution is actually taken each year to remain compliant with IRS regulations.
An exception to these rules pertains to Roth IRAs. Since contributions to Roth IRAs are made with after-tax dollars, the IRS does not impose the same RMD requirements on these accounts. Withdrawals from Roth IRAs typically do not affect taxable income, and account holders are not subject to mandatory distributions.