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Everything You Need to Know About Required Minimum Distributions

We’ll walk you through everything you need to know about required minimum distributions (RMDs), including rules and deadlines.

Articles by Corbin Blackwell, CFP®

By Corbin Blackwell, CFP®
Financial Planner, Betterment  |  Published: April 25, 2019


What is a Required Minimum Distribution (RMD)?

Smart investors diligently save for decades to help ensure they are prepared for retirement. This includes taking advantage of tax-deferred accounts. These accounts, otherwise known as Traditional accounts, can provide two main benefits for investors.

  • You will generally receive a tax break in the year that you contribute to the account.
  • You will avoid having to pay taxes on investment income and capital gains while the funds are still in the account.

While these tax breaks can be very beneficial for savers, they do not last forever.

Owners of tax-deferred accounts are required to begin making withdrawals each year, starting at age 70 ½. This is known as a Required Minimum Distribution (RMD).

What is the deadline for taking RMDs?

You must withdraw your RMD amount from your IRA, 401(k), etc., by December 31st of each year.

The one exception to this December 31st deadline is your very first RMD. Your first RMD can be taken as late as April 1st in the year following the  year in which you turn 70 ½.

If you want to help maximize your tax-deferred growth, and do not need to use the funds for living expenses, we recommend taking your RMDs towards the end of the year each year, rather than at the beginning.

Because it usually takes up to one business day for withdrawals to transact here at Betterment, do not wait up until the last minute to take your RMD. It’s best to put in your withdrawal request online at least a few business days before the deadline.


Sarah will be 70 ½ on May 5, 2019, so she must take her first RMD by April 1st, 2020, and her second RMD by December 31st, 2020.

She can choose to take her first RMD at any time during 2019 (the year she turns 70 ½), and does not have to wait until her half-birthday that year.

How much am I required to withdraw?

Each year, the amount you will be required to withdraw will change. It’s based on your age and the balance in your account on December 31st of the previous year.

At Betterment, we calculate the RMD for your Traditional IRA each year for you, but anyone can calculate their own using the IRS worksheet.

You can find your RMD amount on their Fair Market Value (FMV) Statement, which is available in your account in the Documents > Taxes section.

If you have a Betterment for Business 401(k), please contact your employer for instructions on how to take your RMD.

While we do not automatically calculate RMDs for inherited IRAs, customers in our Premium plan can request that our advisors calculate this for them manually.

For inherited IRAs, this calculation is based on other factors and it’s a bit more complicated. For inherited IRAs, both Roth and Traditional, your required distribution will depend on factors such as whether or not you were the spouse of the decedent, and the age and year in which the original owner died.

If your spouse is your sole beneficiary and is more than 10 years younger than you, you may be entitled to use a more favorable life expectancy table to withdraw a lower distribution.

How do I take my RMD?

  • Log in to your Betterment account.
  • Select Transfer or Rollover in the top right corner of the page.
  • Choose Withdraw and select an account. You will select your Traditional IRA (or SEP, Traditional inherited IRA, or Roth inherited IRA).
  • Select that this is a one-time withdrawal.
  • Select normal distribution as the distribution type.
  • You will be asked to enter the amount you want to withdraw. At this point you want to be sure to enter your total RMD amount.
  • Finally, you will be asked to select Federal tax withholdings. Please consult with your tax advisor if you do not know how much you want us to withhold. Will we calculate the net amount you can expect to receive in your bank account.
  • Click to confirm your withdrawal.
  • We’ll deposit the funds into your linked bank account, usually within 4-5 business days.

If you have a Betterment for Business 401(k), please contact your employer for instructions on how to take your RMD.

Which account types require RMDs?

While there are a few exceptions for taking RMDs from your employer-sponsored plan while you are still working, ultimately you are required to take an annual RMD for all of the following account types:

  • Traditional IRAs
  • SEP IRAs
  • Traditional 401(k) plans
  • Traditional 403(b) plans
  • Traditional 457(b) plans
  • Profit sharing plans
  • Traditional Thrift Savings Plans (TSPs)
  • Qualified annuities
  • Inherited Traditional IRAs
  • Inherited Roth IRAs

Roth 401(k), Roth 403(b), Roth 457(b), and Roth Thrift Savings plans are also subject to RMDs if you are no longer employed with the company and still have funds in the plan on your first RMD due date.

Roth IRAs are not subject to RMDs, so you can avoid taking a mandatory withdrawal if you roll over any Roth employer-sponsored plans into your Roth IRA prior to turning 70 ½.

If you have a Betterment for Business 401(k), please contact your employer for instructions on how to take your RMD.

The 5-Year Rule

There is a Roth IRA holding period of five years that determines whether you can take a qualified distribution without being taxed. This is sometimes called the 5-year rule.

If the Roth 401(k) has been held for less than five years but the Roth IRA you’re rolling it into has been held for more than five years, then all of the funds now meet the five year requirement. If the Roth 401(k) has been held for more than five years but the Roth IRA you’re rolling it into has been held for less than five years, then none of the funds will meet the five year requirement.

Are there any tax consequences for taking RMDs?

In general, any withdrawal from a pre-tax retirement account is considered to be taxable income, and will be taxed at your ordinary income rate. This also means that you may be bumped into a higher tax bracket because of your RMDs. In contrast, qualified distributions from Roth accounts are not taxed.

You can consult with a tax advisor to better understand your holistic tax picture.

Can you offer me any additional assistance?

You can leverage the help of our financial experts before starting your RMDs, to help ensure all of your financial decisions are coordinated to minimize taxes. Our team of financial professionals are happy to help you develop a tax smart financial plan as you approach your retirement years.

If you have a Betterment for Business 401(k), please contact your employer for instructions on how to take your RMD.

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