Required minimum distribution (RMD)

What an RMD is

Tax-deferred retirement accounts cannot stay untouched forever. Starting with the year a participant reaches age 73, they must take at least a minimum amount each year, calculated from the prior year-end balance and an IRS life expectancy table. The starting age rises to 75 in 2033.

The first RMD is due by April 1 of the year after the participant reaches the starting age. Later RMDs are due by December 31 each year.

Two exceptions matter in a 401(k):

• Still working: if the plan allows, an employee who is not a more-than-5% owner can wait until the year they retire to start RMDs from that employer’s plan.

• Roth: since 2024, designated Roth accounts in a 401(k) have no RMDs during the participant’s lifetime.

Why it matters to employers

The plan, not just the participant, is responsible. A 401(k) must make RMDs to stay qualified, so the plan administrator has to identify who is due, including former employees with balances and owners who are still working, calculate the amount and pay it on time. A participant who misses an RMD owes an excise tax of 25% of the shortfall, reduced to 10% if corrected promptly.

Example

An owner with more than 5% of the company turns 73 in 2026 and still works full time. Her first RMD is due by April 1, 2027, and her second by December 31, 2027. An employee of the same age who owns no stock can wait until retirement if the plan document allows.

Common mistakes

• Applying the still-working exception to owners, or to family members treated as owners.

• Losing track of former employees who are past the starting age.

• Using the wrong starting age for people born in different years.

• Rolling over an RMD. RMDs are not eligible for rollover.

• Missing RMDs owed to a deceased participant’s beneficiaries.