What's Your $500,000 Retirement Account's Required Withdrawal? The Math at Age 73+

Let's cut through the complexity. The required minimum distribution, or RMD, is a simple rule with a big consequence: you must start taking withdrawals from most of your retirement savings when you turn 73, or face a steep penalty. This isn't a suggestion-it's part of the federal tax code.

The basic math is straightforward. You generally have to begin taking these annual withdrawals from accounts like traditional IRAs, 401(k)s, and SEP IRAs by the end of the year you turn 73. The IRS sets the minimum amount you must pull out each year based on two things: your account balance at the end of the previous year and your life expectancy, as estimated by IRS tables. You can always withdraw more than the minimum, but you cannot withdraw less.

The "why" is about taxes. When you contribute to a traditional IRA or a 401(k), you often get a tax break upfront. The money grows tax-deferred for decades. The government's position is that it can't let that benefit last forever. Eventually, it wants to tax that money. RMDs are the mechanism to ensure that happens.

The penalty for missing an RMD is severe. If you fail to take the required withdrawal, the IRS will levy a penalty equal to 25% of the amount not withdrawn. That's a massive hit to your nest egg. The good news is the IRS offers a chance to fix it. If you correct the error by taking the full missed withdrawal and filing a corrected tax return within two years, the penalty can be reduced to 10%.

It's important to know what this rule does not apply to. You do not have to take RMDs from a Roth IRA while you are alive. The money in those accounts can keep growing tax-free for as long as you live. However, if you pass away, your beneficiaries will be subject to RMD rules on those accounts.

In short, the RMD rule is a mandatory tax event. It turns your retirement account from a long-term savings vehicle into a source of taxable income. The age of 73 is the starting gun.

The Math Behind the Minimum: A Step-by-Step Breakdown

Let's walk through the calculation itself. Think of it like a simple division problem that gets more demanding as you age. The IRS provides the formula: your account balance at the end of the previous year divided by a life expectancy factor.

To make it concrete, imagine Brian, who turned 76 last year. His 401(k) balance on December 31 was $262,000. The IRS table assigns him a life expectancy factor of 23.7 years. His required withdrawal is simply $262,000 divided by 23.7, which comes out to about $11,055.

Here's the key point: that life expectancy factor isn't a fixed number. It decreases each year you get older. For example, the factor for someone turning 75 is 24.6, and by age 77 it drops to 22.9. This means your required withdrawal amount typically increases annually, even if your account balance stays the same. It's like your "rainy day fund" is being tapped a little more each year as the government's estimate of how long you might need it shrinks.

The bottom line is that the calculation is straightforward arithmetic. The complexity comes from the timing-knowing when to start, which accounts to include, and how to handle multiple accounts. But the math itself? It's just a division problem that gets harder as you age.

Concrete Numbers: What's Your $500,000 Account's RMD?

Now let's get specific. If you have a $500,000 retirement account, here's what your required withdrawals would look like at key ages, starting at 73.

The math is simple division. You take your account balance from the end of the prior year and divide it by the IRS life expectancy factor for your age. That factor shrinks each year, which is why your required withdrawal grows.

At age 73, with a balance of $500,000, your life expectancy factor is 26.5. Your required withdrawal is $500,000 divided by 26.5, which equals about $18,868.

By age 74, the factor drops to 25.5. Your withdrawal jumps to $500,000 divided by 25.5, or roughly $19,608.

The increase continues. At age 75, the factor is 24.6. Your RMD becomes $500,000 divided by 24.6, landing at about $20,325.

The trend is clear. As you age, the IRS's estimate of how long you might live shortens, so the required withdrawal from your account grows each year. For a $500,000 balance, the RMD moves from roughly $18,900 at 73 to over $20,300 by age 75. This is the core mechanics of the rule: your "rainy day fund" gets tapped a little more each year.

Timing and Strategy: Avoiding Penalties and Planning Ahead

The clock starts ticking when you turn 73. Your first required withdrawal must be taken by April 1 of the year after you turn 73. For someone turning 73 in 2025, that means the deadline is April 1, 2026. This gives you a bit of breathing room, but it also creates a potential tax trap.

Here's the catch: if you wait until April 1 to take your first RMD, you'll also need to take your second RMD for the following year by December 31. That means you could end up pulling out money from two separate years in a single calendar year. This double withdrawal can push your total taxable income into a higher tax bracket, creating a "double tax hit" that you could have avoided with a little planning.

For all subsequent years, the deadline is much stricter. You must take your RMD by December 31 each year. Missing that date triggers the severe penalty: the IRS will levy a fee equal to 25% of the amount not withdrawn. While you can later correct the mistake and reduce the penalty to 10%, that's still a massive 10% tax on your own money. The penalty is a direct hit to your retirement savings, so timing is critical.

There is an important exception for those still working. If you're not a 5% owner of your company, you may be able to delay taking RMDs from your workplace retirement plan (like a 401(k)) until the year you retire. This can be a powerful tool for managing your cash flow and tax picture while you're still employed. However, this exception does not apply to traditional IRAs or other individual retirement accounts. You'll still need to start taking withdrawals from those accounts by April 1 of the year after you turn 73, regardless of your employment status.

The bottom line is that RMDs require proactive management. The IRS provides the rules and the math, but you are responsible for setting it up. Many custodians will send notices or offer automatic withdrawal options, but don't assume the system will handle it for you. Planning ahead-knowing your deadlines, understanding the tax implications of taking two withdrawals in one year, and leveraging exceptions like the working past 73 rule-can help you navigate this mandatory tax event smoothly and protect your nest egg.