How Do You Figure Out Monthly 401k Distribution at Retirement?

Read this article to find out the answer to, "How does a 401k work when you're ready for distributions?"

A 401k plan is a defined contribution plan that can help you prepare for life beyond your earning years. If you don’t take your mandatory 401k distribution payments, however, you can lose some of your money. Find out when you should withdraw from your retirement savings and perhaps use your 401k to retire early.

What Is a Required Minimum Distribution?

The government imposes penalties for making early withdrawals from retirement accounts. After a certain age, however, you’re required to take some money out every year. A mandatory 401k withdrawal is called a required minimum distribution.

In general, 401k withdrawal rules from the IRS require you to start withdrawing money from your 401k by April 1 of the year following the year that you turn 70.5, and your age and account value determine the amount you must withdraw. If you’re 70.5 or older and still working, you might be able to delay taking RMDs if your plan is sponsored by the company for which you’re still working. Known as the “still working exception,” you can apply if you:

  • Are employed throughout the entire year
  • Own no more than 5 percent of the company
  • Participate in a plan that allows you to delay RMDs
Retire Comfortably

Related: How to Master Your 401k in Your 60s

How to Calculate Your Required Minimum Distributions

Use IRS Publication 590-B to calculate your 401k RMDs — it includes life expectancy tables that correspond to your specific age. Take the value of your 401k as of Dec. 31 of the previous year and divide that number by the number of your IRS life expectancy remaining years. The resulting number is your RMD, which is the minimum amount you must withdraw from your 401k that year.

Use this guide to determine which table to work from in Publication 590-B — and keep in mind that 403b plans might be subject to different rules:

  • Single life expectancy table: Use this table if you are the beneficiary of an inherited retirement account.
  • Joint and last survivor table: Use this if your spouse is more than 10 years younger than you and is the sole beneficiary of your account.
  • Uniform lifetime table: Consult this table if your spouse is not more than 10 years younger than you or is not the sole beneficiary of your account.
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Different rules and requirements apply if you have 457 plan because it’s not considered a qualified plan. You can take regular distributions from a 457 plan as soon as you retire, regardless of whether you’ve turned 59.5. The 10 percent early withdrawal penalty does not apply to these plans, but all distributions are still taxed as ordinary income.

Penalties for Not Taking RMDs

Because the federal government allowed you to spend your entire working life depositing untaxed income into 401k accounts, the IRS wants to recoup some of that lost tax revenue at some point — and this is why RMDs exist. Whether the 401k is your own or inherited, failure to withdraw an RMD by the deadline results in serious tax penalties — you’ll be taxed at 50 percent. So, if you were supposed to take out a minimum of $4,000 and you didn’t, you’ll owe the IRS $2,000. 

The IRS does, however, allow taxpayers to petition for a penalty waiver if they can prove they missed the deadline because of a reasonable error and that they’re rectifying the mistake. If you want to challenge an RMD penalty, follow the instructions on IRS Form 5329.

Retire Comfortably

Read: 5 Reasons to Avoid 401k Loans

Other Considerations for Required Minimum Distributions

Your 401k administrator might calculate your RMD, but it’s your ultimate responsibility to make sure the calculation is accurate. Note that you can withdraw more than your required minimum, but you can’t apply the excess funds to your following year’s RMD.

If you own more than one 401k, you must calculate the RMD amount for each account. You can, however, withdraw your RMD amount from a single account. If you own different types of accounts, such as one IRA and one 401k, you must take RMDs from each one.

You might consider opting for a systematic withdrawal plan. SWPs provide income in the form of monthly, quarterly or annual withdrawals from 401k plans, which you can schedule to meet your RMD obligations.

Avoid 401k Withdrawal Mistakes

Most people are required to start making annual withdrawals from their 401k accounts after they turn 70.5. The IRS provides all the information you need to figure out how much your withdrawals — called required minimum distributions — should be.

Don’t make a costly mistake when it comes to taking your 401k money. Find out today how much your withdrawals should be at what age and keep your money working for you as long as you can.

Up Next: How to Make a Penalty-Free 401k Withdrawal

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About the Author

Andrew Lisa

Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service. He worked as the business section editor for amNewYork, the most widely distributed newspaper in Manhattan, and worked as a copy editor for, a financial publication in the heart of Wall Street's investment community in New York City.

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