Charles Schwab RMD Calculator
Understanding Your Required Minimum Distribution (RMD) with Charles Schwab
Required Minimum Distributions (RMDs) are annual withdrawals that must be taken from most employer-sponsored retirement plans and traditional IRAs once you reach a certain age. The IRS mandates these distributions to ensure that taxes are eventually paid on tax-deferred savings. Failing to take your RMD, or taking less than the required amount, can result in a hefty 25% excise tax on the amount not distributed (reduced to 10% if corrected in a timely manner).
Who Needs to Take an RMD?
Generally, RMDs begin for traditional IRA owners, SEP IRA owners, SIMPLE IRA owners, and participants in 401(k), 403(b), and 457(b) plans when they reach age 73 (for those turning 72 after December 31, 2022). If you turned 72 in 2022 or earlier, your RMD age was 72. Roth IRAs do not have RMDs for the original owner, but beneficiaries of Roth IRAs are subject to RMD rules.
How is Your RMD Calculated?
The calculation for your RMD is straightforward:
RMD = Account Balance on December 31st of Previous Year / Life Expectancy Factor
The "Account Balance" is the fair market value of your retirement accounts as of December 31st of the year prior to the year for which the RMD is being calculated. For example, to calculate your 2024 RMD, you would use your account balance on December 31, 2023.
The "Life Expectancy Factor" is determined by the IRS Uniform Lifetime Table. This table provides a factor based on your age in the year for which the RMD is being calculated. Our calculator uses the most current IRS Uniform Lifetime Table to provide an accurate estimate.
The Role of Charles Schwab
As a custodian of your retirement accounts, Charles Schwab provides resources and tools to help you understand and fulfill your RMD obligations. They typically provide statements indicating your prior year-end balance and may offer services to help you set up automatic RMD withdrawals. While this calculator provides an estimate, it's always wise to confirm your RMD amount with Charles Schwab or a qualified financial advisor, especially if you have multiple retirement accounts or complex situations.
Important Considerations:
- Multiple Accounts: If you have multiple IRAs, you must calculate the RMD for each IRA separately. However, you can withdraw the total RMD amount from any one or more of your IRAs. This flexibility does not apply to 401(k)s or other employer-sponsored plans; RMDs from these must be taken from each respective account.
- First RMD Year: For your first RMD, you have the option to defer taking it until April 1st of the year following the year you turn 73 (or 72, depending on your birth year). However, if you defer, you'll have to take two RMDs in that subsequent year (one for the prior year and one for the current year), which could push you into a higher tax bracket.
- Qualified Charitable Distributions (QCDs): If you are 70½ or older, you may be able to make a Qualified Charitable Distribution (QCD) directly from your IRA to a qualified charity. QCDs can count towards your RMD and are excluded from your taxable income.
Examples:
Example 1: Sarah is 75 years old in the current year. Her IRA balance on December 31st of the previous year was $500,000. According to the IRS Uniform Lifetime Table, the life expectancy factor for age 75 is 24.5.
RMD = $500,000 / 24.5 = $20,408.16
Example 2: John is 80 years old in the current year. His combined IRA balance on December 31st of the previous year was $750,000. The life expectancy factor for age 80 is 19.8.
RMD = $750,000 / 19.8 = $37,878.79
Use this calculator as a helpful tool to estimate your RMD, but always consult with Charles Schwab or a financial professional for personalized advice.