Don’t Give Up | Required Minimum Distribution

By Eric Ellis | May 6, 2020 | Required Minimum Distribution

Updated January 20, 2023


Remember putting together your kid’s toys on Christmas Eve?

Last year Santa brought the girls a playhouse. Assembly required. My original approach was a Tony Stark level of over-confidence. After I opened the box and saw the +200 pieces, my confidence drifted to worry. The instructions were in a different language. The design was confusing. It was midnight and nearly 30°. It made me want to give up.

Required Minimum Distributions (RMD) can make a lot of people feel the same way. It is new, not easy to understand, and can make you worried that you are not “doing it right”.

No worries. We’re here to help.

What is a Required Minimum Distribution?

A required minimum distribution (RMD) is the minimum amount the IRS requires you withdraw from your account(s) each year. If you are 73 (or older) and have one of the accounts below, congratulations! You have a RMD. If you are born in 1960 or later, your RMDs will not start until you are 75 years old.

They apply to traditional IRA, SEP-IRA, SIMPLE IRA, 401(k), 403(b), 457(b), Profit-sharing plans, and other defined-contribution plans. Any account with pre-tax contributions.

You can withdraw more, it is your money after all. It is important to know any amount you take out of these accounts will be included in your taxable income (with this exception).

Why do I have to take an Required Minimum Distribution (RMD)?

The IRS has given you a tax incentive to save for your retirement. If you started saving at age 20 and retire at age 65, that is 45 years of taxes that have been deferred. You know Uncle Sam wants his “fair share”. The RMD is a way to force assets out of your tax-deferred accounts into taxable accounts. Plainly stated, it is a source of revenue for the government.

How is it calculated?

You’ll need two items.

    1. Your Balance. Take the sum of all of your accounts that qualify for RMDs (listed above) as of 12/31 from the year before.
    2. Your Age Factor. Find your factor based on your age as of 12/31 of the current year.

(Your Balance )/(Your Age Factor) = RMD

Simply divide Your Balance by Your Age Factor and voila! You have your RMD.

For example, Mike will be 75  by the end of the year and has three IRAs. One with $1,500,000, another with $450,000, and another with $50,000. His total balance is 2,000,000. His factor is 22.9. Mike’s RMD will be $87,336.24 ($2,000,000/22.9).

What if I don’t take my Required Minimum Distribution (RMD)?

The penalty for not taking your RMD is steep, it is 25% of your RMD amount. Let’s look at Mike from the example earlier. His RMD was $87,336.24. If Mike does not take his required minimum distribution (RMD) before the end of the year his penalty would be $21,834.06!!!


required minimum distribution

Allie & Kate and their playhouse. Finally put together.


With some patience and help from YouTube, I was able to build Allie and Kate’s playhouse. Fortunately, you don’t have to stress through your RMD. You have us. We’re on your team. Lean on us as a resource. We will help you through it so you don’t have to worry.


Retire Confident,



Eric Ellis
Financial Advisor
Ellis & Company Retirement Strategists




In 2020 there was an exception for that year only due to COVID-19.

IRS Worksheets
The opinions expressed here are those of Eric Ellis and not necessarily Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. All investing involves risks, including the possible loss of the principal amount invested. No investment strategy can guarantee your objectives will be met. The S&P 500 is an unmanaged index of 500 widely held stocks that are generally considered representative of the U.S. stock market. It is unmanaged and cannot be invested into directly.
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