If you’re turning 73 this year, you’re likely facing your first Required Minimum Distribution (RMD) from your retirement accounts. Understanding the percentage you need to withdraw is crucial—not only to stay compliant with IRS rules but also to plan your income, taxes, and long-term finances.
The RMD Formula
The IRS calculates your RMD using a simple formula:
RMD = Account Balance ÷ Life Expectancy Factor
At age 73, the IRS assigns a life expectancy factor of 26.5 under the Uniform Lifetime Table, which is used by most account holders. To determine the RMD percentage, you divide 1 by 26.5:
1 ÷ 26.5 = 0.0377, or approximately 3.77%
So, the RMD at age 73 is roughly 3.77% of your total retirement account balance.
Example Calculation
Suppose your traditional IRA had a balance of $500,000 on December 31 of the previous year. To calculate your RMD at age 73:
- $500,000 ÷ 26.5 = $18,867.92
That’s the amount you must withdraw by December 31 of the current year to satisfy your RMD requirement.
Why It Matters
Failing to withdraw the correct amount can result in a 25% IRS penalty on the shortfall—though this can be reduced to 10% if corrected in time. Taking the right percentage helps you avoid penalties while planning around taxes, Medicare premiums, and Social Security thresholds.
Keep in mind:
- Traditional IRAs and 401(k)s are subject to RMDs
- Roth IRAs are exempt during the owner’s lifetime
- Employer plans like 401(k)s require separate RMDs unless rolled into an IRA
Planning Tip
Because the RMD percentage increases with age, future withdrawals will represent a growing portion of your retirement balance. At age 80, for instance, the RMD percentage is closer to 5.35%. This makes it essential to factor RMDs into your retirement income and tax strategy early on.
Final Thought
At age 73, your RMD percentage is about 3.77%, but your actual dollar amount depends on your account balance and the IRS divisor. Use a trusted RMD calculator or speak with a financial advisor to get an accurate estimate tailored to your situation. Dimov Tax is ready to present professional advice. Contact us today for financial clarity and full compliance.