Required minimum distributions (RMDs) for participants: FAQs

As the plan sponsor, you are responsible for ensuring that RMDs are met every year. This includes participants that have left the company or retired and may still have money in the plan. Failure to make required distributions is a violation of plan rules and could result in an IRS penalty and plan disqualification.

In general, 401(k) account owners don't have to take RMDs until the year they reach age 73 or retire, whichever is later. However, account owners who own more than 5% of the business sponsoring the plan must begin taking RMDs when they reach age 73, regardless of whether they've retired or not.

The RMD rules do not apply to Designated Roth accounts while the account owner is alive. However, RMD rules do apply to the beneficiaries of Designated Roth accounts.

RMD deadlines

RMDs for a given year generally must be taken by December 31 of that year. An account owner's first RMD, however, can be delayed until April 1 of the following year. For example: Jessica is retired and turned 73 in 2025, so she must take her RMD for 2025 by April 1, 2026. Her RMD for 2026 must be taken by December 31, 2026.

For more details, see the IRS RMDs page and RMDs FAQs

Answers to common questions about RMDs

An RMD is calculated by dividing the account balance, excluding Designated Roth accounts, at the end of the previous calendar year by the participant's life expectancy, as defined by the IRS in Publication 590-B, updated annually. Most participants will use the IRS Uniform Lifetime Table (Table III) to determine the RMD*.

Example: Brian is a retired, unmarried 401(k) participant who turned 73 in 2024. At the end of 2023, his account balance was $262,000. To calculate his RMD for 2024, he divides $262,000 by his distribution period (or life expectancy) of 26.5 years (IRS Publication 590-B, Appendix B, Table III (Uniform Lifetime)). His RMD for 2024 is $9,886.79.

If the account owner passes away, the account owner's information is used to calculate the RMD for the year of the death. Beginning the year after the owner's death, the RMD is determined by the characteristics of the designated beneficiary. See the IRS Retirement Topics - Beneficiary page.

* Table III is for use by unmarried owners, married owners whose spouses aren't more than 10 years younger, and married owners whose spouses aren't their sole beneficiaries. Table II (Joint Life and Last Survivor Expectancy) is for use by married owners whose spouses are more than 10 years younger and are the sole beneficiaries.

Each year, Capital Group, home of American Funds, runs a report reflecting participants who have reached RMD age or will be reaching the required age this year but have not set up automatic minimum distributions. These participants will be notified and given a description of the RMD rules.

You can also find out at any time which participants are or will be turning RMD age by the end of the year by running a Required Minimum Distribution Participant Listing report.

  1. Click on Reports, and then click Standard Reports in the row directly below the tab.
  2. Click on the Distributions & Loans tab in the top row.
  3. Select Required Minimum Distribution Participant Listing from the list to see an overview, a sample or to order a report.

Participants have two options:

  • Set up automatic minimum distributions. Participants can sign up for the automatic minimum distribution feature to have their RMD taken care of every year. All your participants have to do is fill out a Required Minimum Distribution Form. Once the form is completed and returned to us, all future RMDs will be calculated and sent to the participant or electronically deposited into a bank account.

Participants can download the form by logging in to their accounts, going to any ACCOUNT page, selecting Plan forms under PLAN INFORMATION in the left menu, then Required Minimum Distribution Request.

  • Calculate and request their RMD every year. Participants may choose to calculate the RMD themselves or with the assistance of a legal or tax professional. Employees who select this option must calculate their RMD annually and submit a Separation from Employment Withdrawal Request form each year. RMDs will not be sent automatically, and participants will not receive any reminders.

 

Remember, you need to make sure that participants take RMDs because the plan must comply with the RMD rules. Participants who fail to take an RMD or withdraw less than the required amount will be subject to a 25% federal excise tax on any amount that should have been withdrawn but wasn’t. If an RMD is missed (not taken timely) and later corrected within two years, the excise tax may be reduced to 10%.

For more information on these rules, please contact your legal professional or call us at (877) 872-5159.

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