How Much Is the Required Minimum Distribution (RMD) If You Have $500,000 in Your Retirement Account?

Tax-advantaged accounts — think traditional IRAs and employee sponsored plans like a 401(k) — are incredible tools to build wealth over a lifetime — wealth you will need to carry you in retirement.

The IRS still wants its cut

Since you don’t pay tax on the money going in, you have to pay it on required minimum distributions (RMDs) coming out. Did you think the IRS wouldn’t want its piece? Still, this works out in your favor. By deferring taxes to retirement, you get to front-load your savings, allowing you to make the most of time and our friend, compound interest. Additionally, for most, their marginal tax rate in retirement is lower than what they would have paid while working, meaning they save even more.

The RMD

If you are lucky enough to not need to draw on your accounts during a given year in retirement, you’re not off the hook. The IRS mandates that you withdraw a certain amount each year once you hit 73. This required minimum distribution (RMD) ensures the IRS gets its cut. If you have money in a retirement account and you are over 73, you must take your RMD by Jan. 1, with one notable exception: If you turned 73 this year, you have until April 1, 2025. Here’s how it’s calculated. First, the current year’s RMD is actually based on your accounts at the end of the previous year, so you need to know your account balance from the end of 2023. You then divide that number by your “distribution period” — a number the IRS sets based on your age, which can be found in a table. The result is your RMD. So, what would your RMD be if you had $500,000 in your account at the end of 2023? By now, I hope it’s clear that the answer depends on your age, so let’s say you are 80. In that case, your RMD would be $500,000 divided by 20.2 (the IRS distribution period), which comes out to $24,752.48.