Required Minimum Distribution (RMD) Rules

LAST REVIEWED Oct 27 2021 8 MIN READ

By The Human Interest Team

A required minimum distribution (RMD) is the minimum amount an account owner must annually withdraw from their retirement plan, as outlined by the IRS. RMDs apply to tax-deferred plans like 401(k)s and 403(b)s. While the CARES Act temporarily suspended them in 2020 (on account of the COVID-19 pandemic), RMDs have been reinstated for 2021 and beyond. 

Here’s what else you need to know.

An overview of required minimum distributions

RMDs are minimum amounts of money that retirement plan account owners need to withdraw beginning the year they turn 72—unless they turned 70 1/2 before January 1, 2020. In this case, they would have to begin RMDs at 70 1/2. If they are still working past the age of 72 they will start RMDs the year they retire. 

Who must take RMDs? 

RMD rules apply to account holders of tax-deferred retirement plans, including rollover IRAs, traditional IRAs, SEP IRAs, and SIMPLE IRAs, along with most 403(b)s and 401(k)s. They also apply to Roth IRAs; however, they don't apply when the account owner is still living.  

You must take one if you have reached 72 years of age AND: 

  • Are no longer employed with the company that sponsors your plan, or

  • Own greater than 5% of the company that sponsors the plan, regardless of your employment status, or

  • Are a parent, spouse, child, or grandchild of a greater than 5% owner of a company, regardless of employment status

SECURE Act changes: Lifetime RMDs start at age 72

The age at which participants in employer-sponsored retirement plans or IRA owners need to start taking RMDs was increased from the year they turn 70 1/2 to the year they turn 72 with the passage of the SECURE Act

Individuals participating in 403(b)s, 401(k)s, and other non-IRA-based retirement plans sponsored by employers can delay RMDs past age 72 as long as they're still working, unless they are a greater than 5% owner. 

How much of a distribution must participants take?

In most cases, the RMD for a given year is calculated by using your account balance as of 12/31 from the previous year divided by a distribution factor from the IRS’s Uniform Lifetime Table. You can learn more using this calculator

Note: A separate table is used if the sole beneficiary is your spouse who is ten or more years younger than the owner (more on this below). In this case, you can review this IRS page to calculate your required minimum distribution. 

RMD deadlines and exceptions

There may be some options other than taking a single RMD payment for the year, depending on the terms of the plan. Some plans allow multiple installment payments during the year. A participant should check their SPD or ask the plan administrator if this is an option.  If multiple distributions are taken during the year, the total distributions taken for the year must meet the required RMD for that year by the stated deadline. If an individual doesn't take an RMD by the required deadline, the IRS will assess a penalty  of  50% on the amount of the RMD that was not withdrawn.  

Generally, RMDs must be taken by 12/31 each year. If it’s the first year a participant is required to take an RMD, they may wait until the Required Beginning Date of 4/1 of the following year to withdraw the funds. If they prefer to take distributions in the same calendar year, however, they may do so. RMDs in subsequent years must be taken by 12/31.

There are complicated rules related to RMDs of the death benefit to a beneficiary after the participant's death.  The plan’s administrator should be consulted for information in this situation. 

What’s the RMD process at Human Interest? 

RMDs, like other types of distribution and withdrawals, are initiated through the plan’s recordkeeper. With Human Interest, there’s little you have to do as a plan administrator:

  • Complete or Concierge plan customers: Human Interest acts as your plan’s 3(16) fiduciary for RMDs, meaning that we’ll identify which participants in your plan must take an RMD and send them distribution forms and instructions to complete their withdrawal—no involvement on your part required. 

  • Essentials plan customers: Although Human Interest is not acting as your plan’s 3(16) fiduciary, the good news is we still let you know which participants must take an RMD. All you have to do is confirm those participants are correct or submit any changes to Human Interest, including any missing participants. From there, we’ll handle the rest of the communication by sending participants the distribution forms and instructions to complete their withdrawal.  

Similarly, if you’re a participating account holder of a Human Interest 401(k) plan, there’s little to do on your end. We’ll notify you via email if we determine you must take an RMD for the current calendar year and provide a distribution request form to complete along with easy instructions to follow.

Zero transaction fees for RMDs 

Human Interest always provides zero transaction fees, which includes $0 in RMD distribution fees. We believe it’s unfair for businesses and their employees to be blindsided by hefty, hidden fees—and the elimination of RMD fees (and more) builds on our already low-cost offerings. If you’d like to discuss 401(k) plans, get in touch with Human Interest today.

The Human Interest Team

Article By

The Human Interest Team

We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment advising, and integration with leading payroll providers.

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