How to Determine the RMD on a $500,000 Retirement Account

Key Points

• In most situations, retirees with tax-deferred retirement accounts must start taking required minimum distributions, or RMDs, at age 73.

• RMDs are figured by dividing the prior year’s account balance by the IRS life expectancy factor that applies to the account holder’s age.

• For a 73-year-old with $500,000 in a traditional IRA as of the end of the prior year, the RMD comes to $18,868.

Tax-deferred retirement accounts, including traditional IRAs and 401(k) plans, let workers lower their current taxable income by postponing taxes on eligible contributions. But taxes cannot be deferred forever.

For that reason, most people with tax-deferred retirement savings must begin taking required minimum distributions at a certain age. Each year, they must withdraw a required share of the account balance, and the money is taxed as ordinary income when taken out.

Below is a closer look at how RMDs work, when they begin, and how to calculate the withdrawal from an account with a $500,000 balance.

Which accounts are subject to required minimum distributions

A required minimum distribution is the smallest amount an account holder must withdraw each year from a tax-deferred retirement account. The rule applies to account owners and beneficiaries in plans such as:

• Profit sharing plans

RMD rules do not apply to Roth accounts while the original owner is alive, though beneficiaries of Roth accounts are subject to them.

In most cases, the annual RMD must be taken by the end of the calendar year. The first RMD is the exception, since it may be delayed until April 1. For example, someone who turned 73 in 2026 could wait until April 1, 2027, to take the first distribution. After that, every RMD must be completed by December 31 of each year.

When RMDs start based on birth date

The age at which RMDs begin depends on a person’s birth date. The schedule below outlines the starting point:

Data source: Internal Revenue Service.

Anyone who misses the deadline for an RMD can face an excise tax equal to 25% of the amount that should have been withdrawn. That penalty can drop to 10% if the mistake is corrected within two years. In some cases, the penalty can be waived entirely if the shortfall resulted from a reasonable error. In either case, the account holder must file Form 5329 with a tax return.

How to calculate the RMD on a $500,000 retirement account

RMDs are calculated by dividing the prior year’s ending account balance by the applicable distribution period. For example, an RMD due by the end of one year is based on the account balance from the end of the previous year.

If a person has more than one IRA, the RMD must be calculated separately for each account, but the total amount can be taken from one IRA or divided among several IRAs. That rule does not apply to defined contribution plans such as 401(k) plans and profit-sharing plans, where RMDs must be calculated and withdrawn separately. A 403(b) plan is an exception, allowing the account holder to combine RMDs and take the total from one or more 403(b) accounts.

The IRS provides three life expectancy tables. Table 1, the Single Life Expectancy Table, is used for certain inherited accounts. Table II, the Joint and Last Survivor Life Expectancy Table, applies when a spouse is the sole beneficiary and is more than 10 years younger. Table III, the Uniform Lifetime Table, applies to most other account holders.

The abbreviated table below reflects part of the IRS Uniform Lifetime Table and is used in the examples that follow.

Data source: Internal Revenue Service. Uniform Lifetime Table. RMDs are found by dividing the distribution period into the prior year’s account balance.

For example, Mark turns 73 in a given year and has $500,000 in a traditional 401(k) as of the end of the previous year. His RMD is $500,000 divided by 26.5, which equals $18,868. Because this is his first RMD, he can delay the withdrawal until April 1 of the following year. His second RMD, however, must still be taken by the end of that same calendar year.

Another example: Kate turns 75 in a given year. She has $250,000 in a traditional IRA and $250,000 in a traditional 401(k) at the end of the previous year. Her IRA RMD is $250,000 divided by 24.6, or $10,163. Her 401(k) RMD is calculated separately, also as $10,163.

Final example: Robert turns 75 in a given year and has $250,000 in one traditional IRA and $250,000 in another traditional IRA at the end of the previous year. His RMD amounts are the same as Kate’s, but he can combine them and withdraw the total of $20,326 from just one account.