Understanding Required Minimum Distributions (RMDs) from Your 401(k)

As you get older, the IRS requires you to begin withdrawing money from your 401(k). These mandatory withdrawals are called Required Minimum Distributions, or RMDs.

Even if you don’t need the money for living expenses, RMDs must be taken to avoid penalties. This article explains how RMDs work and how to plan for them.

Required Minimum Distributions are the minimum amounts you must withdraw each year from your 401(k) (and other tax-deferred retirement accounts) starting at a certain age. These withdrawals are taxed as ordinary income.

RMDs help ensure that retirement accounts are used for their intended purpose—providing income during retirement—rather than accumulating tax-deferred wealth indefinitely.

• If you turn 73 in 2025 or later, you must start RMDs by April 1 of the year after you turn 73.

• After your first RMD, you must take future RMDs by December 31 each year.

Example: If you turn 73 in October 2025:

• You must take your first RMD by April 1, 2026

• Your second RMD must be taken by December 31, 2026

• You can take both in 2026, but it may increase your taxable income for that year

Yes, unless your plan includes the "still working" exception:

• If you’re still employed and don’t own more than 5% of the company, you may be able to delay RMDs from your current employer’s 401(k) until you retire.

• This exception does not apply to IRAs or 401(k) accounts from previous employers.

Check with NestEggs to see if this exception applies to you.

Your RMD is based on:

• Your age and

• Your account balance as of December 31 of the previous year

The IRS provides a Uniform Lifetime Table that gives you a life expectancy factor. Your RMD is calculated as:

December 31 Prior Year Account Balance ÷ IRS Life Expectancy Factor

NestEggs calculates RMDs automatically and proactively sends communication to you each year to help manage them.

If you're married, please note that the life expectancy factor may need to change depending on your spouse's age (if your spouse is 10 or more years younger).

1. Log in to your 401(k) account and go to the “Withdrawal Request” menu section under "Manage".

2. Choose whether to:

   • Take the full RMD in one payment

   • Set up recurring withdrawals (monthly, quarterly, etc.)

3. Provide tax withholding instructions and your bank account details for direct deposit.

You can also request a check, but direct deposit is usually faster and safer.

If you don’t take your RMD by the deadline, the IRS imposes a 25% excise tax on the amount you failed to withdraw. This can be reduced to 10% if corrected promptly.

Example: If your RMD was $10,000 and you didn’t take it, the penalty could be as high as $2,500.

• RMDs from pre-tax 401(k) funds are taxable as ordinary income

• You can’t roll over an RMD into another retirement account

• You can choose to withhold taxes automatically from your RMD payment

• Consider coordinating RMDs with other sources of retirement income to manage your tax bracket

• If you don’t need the money, use it to fund an IRA (if eligible), a taxable investment account, or a gift to family or charity

• Talk to a financial advisor or tax professional for personalized guidance

RMDs are a required part of managing your 401(k) in retirement. Be sure to understand when they start, how much you need to withdraw, and the tax implications to avoid penalties and keep your retirement income plan on track.