How is RMD Calculated? Avoid Common Mistakes
January 28, 2026
How Is RMD Calculated? Common Mistakes Explained
Managing your retirement funds can sometimes feel like navigating a maze. And when it comes to Required Minimum Distributions (RMDs), many people hit roadblocks. Understanding RMDs is crucial, especially as you approach retirement age. Mistakes in calculating or taking these distributions can lead to hefty penalties and financial headaches. But don’t worry—we’re here to break it down for you. If you’ve ever asked “how is RMD calculated,” this guide will help clarify the process and highlight pitfalls to avoid.
RMDs are the minimum amounts you must withdraw from your retirement accounts annually once you reach a certain age. They apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and retirement plans like 401(k)s. The idea is to ensure that individuals don’t simply hoard their tax-deferred savings indefinitely.
How is RMD Calculated?
The calculation of RMDs can seem daunting, but it’s quite straightforward with the right information. Here’s a simple breakdown:
- Determine Your Age: Your RMDs start at age 75, commonly referred to as the rmd age 75 threshold, but in some cases, they may start earlier depending on when you were born. Always check the latest regulations, as these can change.
- Account Balance: Find the balance of your retirement account as of December 31 of the previous year.
- Life Expectancy Factor: Use the IRS Uniform Lifetime Table to find your life expectancy factor. This table helps you determine how much you should withdraw each year based on your age.
- RMD Calculation: Divide your account balance by your life expectancy factor. This gives you the minimum amount you need to withdraw for the year.
Example
Let’s say you’re 76 years old, and your account balance at the end of last year was $200,000. According to the IRS table, your life expectancy factor might be 22 years. Divide $200,000 by 22, and your RMD for the year is approximately $9,091.
Common Mistakes in RMD Calculation
Misunderstanding RMD Age
One of the most common errors is miscalculating the age at which RMDs must begin. The age threshold has shifted over the years, so be sure to verify your required starting age based on the current rules. For many, it’s 75, but it may differ if you turned 72 before 2023.
Incorrect Account Balances
Using the wrong account balance can lead to an incorrect RMD calculation. Make sure you’re using the balance as of December 31 of the previous year. Double-check with your financial institution to ensure accuracy.
Overlooking Different RMDs for Multiple Accounts
If you have multiple retirement accounts, each one might have its own RMD requirement. For IRAs, you can take the total RMD from any one or more of your IRAs, but for 401(k)s, each account’s RMD must be calculated and withdrawn separately.
Forgetting to Withdraw the RMD
Skipping an RMD can result in a steep penalty—50% of the amount that wasn’t withdrawn. It’s crucial to mark your calendar and ensure that your RMD is taken out each year.
Ignoring RMD Taxes
RMDs are considered taxable income. Not accounting for the tax implications can affect your overall tax situation. Consider consulting with a tax professional to plan for any additional tax burdens. Be mindful of RMD taxes when estimating withholdings or quarterly payments.
RMDs and 401(k) Plans
When it comes to 401(k) plans, rmd 401k rules can be slightly different. If you’re still working at age 75 and do not own more than 5% of the company, you might be able to delay RMDs from your current employer’s 401(k) plan until you retire. However, this does not apply to IRAs or 401(k)s from previous employers.
Strategies to Manage RMDs
Plan Ahead
Start planning for RMDs well before you hit the required age. Knowing how much you’ll need to withdraw and the associated taxes will help you avoid surprises.
Consider a Roth Conversion
Roth IRAs don’t require RMDs during the account owner’s lifetime, which makes them an attractive option. Converting some of your traditional IRA funds to a Roth IRA can reduce future RMDs.
Use RMDs Wisely
Consider reinvesting your RMDs into a taxable brokerage account if you don’t need the funds immediately. This can help your money continue to grow.
Charity Contributions
If you’re charitably inclined, consider making a Qualified Charitable Distribution (QCD). This allows you to donate up to $100,000 of your RMD directly to charity, potentially reducing your taxable income.
Bottom Line
Understanding and managing your RMDs is a vital part of your retirement plan. Avoiding common mistakes and planning can save you from penalties and help maintain your financial health. Remember, when in doubt, seek guidance from a financial advisor who can offer personalized advice tailored to your situation.
by Ivan Shilov (https://unsplash.com/@mycreate)
By staying informed and proactive, you can make the most of your retirement savings and enjoy the fruits of your labor with peace of mind.
Want to make sure your RMDs are calculated correctly—and taken on time?
Schedule a free, no-obligation consultation, and we’ll help you review your retirement accounts, confirm your required starting age, estimate your distribution amount, and plan for the tax impact—so you can avoid unnecessary penalties and stay on track.