A required minimum distribution (RMD) is the minimum amount a retirement account owner must annually withdraw from their plan
RMDs apply to tax-deferred plans like 401(k)s and 403(b)s
Most non-owner employees must take an RMD the year they turn 73
An overview of required minimum distributions
Required minimum distributions (RMDs) are the minimum amounts of money retirement plan account owners must withdraw beginning the year they turn 73, as outlined by the IRS. Non-owner employees who continue to work past 73 will start receiving RMDs in 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 but don't apply when the account owner is still living.
You must take one if you have reached 73 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 2.0 changes: lifetime RMDs start at age 73
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 72 to the year they turn 73 with the passage of the SECURE 2.0 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 73 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 25% on the amount of the RMD that was not withdrawn. This penalty can be reduced to 10% if corrected within a two-year window
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, but by doing so the participant will have two distributions for the first calendar year. 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 provides zero transaction fees, which includes $0 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.
Article ByVicki Waun
Vicki Waun, QPA, QKC, QKA, CMFC, CRPS, CEBS, is a Senior Legal Product Analyst at Human Interest and has over 20 years experience with recordkeeping qualified plans, along with extensive experience in compliance testing. She earned her BSBA in Accounting from Old Dominion University and is a member of ASPPA.