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- The Required Minimum Distribution (RMD) percentage at age 73 is 3.77%.
- RMDs apply to tax-deferred retirement accounts like traditional IRAs and 401(k)s.
- The RMD amount is calculated by dividing the account balance by the IRS life expectancy factor (26.5 at age 73).
- Failing to take the RMD can result in a penalty of 25%, reduced to 10% if corrected within two years.
- The RMD percentage increases each year as retirees age.
- RMDs are taxed as ordinary income and cannot be reinvested in a tax-deferred account.
- Roth IRAs do not have RMDs unless inherited.
- Qualified Charitable Distributions (QCDs) allow tax-free donations from an IRA to reduce taxable income.
- Multiple retirement accounts require separate RMD calculations, but IRA RMDs can be withdrawn from one or multiple accounts.
What Is the RMD Percentage at Age 73?
Understanding Required Minimum Distributions (RMDs) is essential for anyone with a tax-deferred retirement account. At a certain age, account holders must start withdrawing a specific percentage of their savings each year.
These withdrawals are mandated by the IRS to ensure that tax-deferred funds do not remain untaxed indefinitely.
One of the most common questions retirees ask is: what is the RMD percentage at age 73? The answer depends on IRS life expectancy tables, which determine the percentage required for withdrawal. In this article, we’ll explain how RMDs work, how the percentage is calculated, and why it’s important to withdraw the correct amount.
Understanding RMDs and Aging
RMDs apply to traditional IRAs, 401(k)s, 403(b)s, and other tax-deferred retirement accounts. They do not apply to Roth IRAs unless inherited. RMD rules exist because the government allows these accounts to grow tax-free during a person’s working years.
However, once the individual reaches a specific age, the IRS mandates withdrawals to ensure tax collection.
Prior to 2020, RMDs began at age 70½. The SECURE Act of 2019 changed this to 72, and SECURE 2.0 Act of 2022 pushed the starting age to 73 for individuals born between 1951 and 1959. For those born in 1960 or later, RMDs begin at 75.
Since the starting age has changed, many retirees want to know what is the RMD percentage at age 73? The percentage is based on the IRS Uniform Lifetime Table, which estimates life expectancy and determines the withdrawal rate.
How Is the RMD Percentage Calculated?
The IRS provides a life expectancy factor to calculate RMDs. The formula is simple:
RMD = Account Balance ÷ Life Expectancy Factor
For age 73, the IRS assigns a life expectancy factor of 26.5 (based on the 2023 table). To determine the required withdrawal, divide the account balance by this factor.
For example:
- If a retiree has $500,000 in an IRA at the end of the previous year, the calculation would be:
$500,000 ÷ 26.5 = $18,868.
This means the retiree must withdraw at least $18,868 for the year.
Since the denominator (life expectancy factor) decreases each year, the RMD percentage increases as the person gets older. This ensures retirees withdraw more as they age.
What Is the RMD Percentage at Age 73?
The RMD percentage at age 73 is 3.77%. This is calculated using the formula:
RMD Percentage = 1 ÷ Life Expectancy Factor
For age 73, using a life expectancy factor of 26.5, we get:
1 ÷ 26.5 = 0.0377 (or 3.77%)
This means someone with a tax-deferred retirement account must withdraw at least 3.77% of their total balance that year.
Why Is the RMD Percentage Important?
Understanding the correct percentage is crucial because failing to withdraw the required amount results in IRS penalties. Prior to SECURE 2.0, the penalty for missing an RMD was 50% of the required amount. The updated law has reduced this penalty to 25%, or 10% if corrected within two years.
For example, if someone needed to withdraw $18,868 but failed to do so, they could owe a penalty of up to $4,717.
How RMDs Change Over Time?
RMD percentages increase each year. Here’s a look at how they progress:
- Age 73: 3.77%
- Age 74: 3.91%
- Age 75: 4.07%
- Age 80: 4.95%
- Age 85: 6.25%
- Age 90: 8.20%
As you can see, the percentage rises over time, forcing retirees to withdraw larger portions of their savings.
Strategies to Manage RMDs
Since RMDs increase with age, retirees should plan their withdrawals carefully. Here are some strategies to minimize taxes and optimize savings:
Start Withdrawals Early
- Withdraw small amounts before reaching RMD age to spread tax liability.
Use Qualified Charitable Distributions (QCDs)
- Donate up to $100,000 per year from an IRA to charity tax-free.
Convert to a Roth IRA
- Roth conversions reduce future RMDs, as Roth IRAs do not have lifetime RMDs.
Delay Social Security
- Delaying Social Security can help manage total taxable income.
Common Questions About RMDs
Can I Withdraw More Than the RMD?
Yes, retirees can withdraw more than the minimum amount. However, withdrawing too much may push them into a higher tax bracket.
How Are RMDs Taxed?
RMDs are taxed as ordinary income, meaning they are subject to federal and state income taxes.
Can I Reinvest My RMD?
Yes, but RMDs cannot be put back into a tax-deferred account. They can be invested in a taxable brokerage account.
What Happens If I Have Multiple Accounts?
RMDs must be calculated separately for each IRA but can be withdrawn from one or multiple accounts. For 401(k)s, each account has a separate RMD requirement.
Frequently Asked Questions
Here are some of the related questions people also ask:
What is the RMD percentage at age 73?
The RMD percentage at age 73 is 3.77%, based on the IRS life expectancy factor of 26.5.
How do I calculate my RMD at age 73?
Divide your prior year-end retirement account balance by the IRS life expectancy factor (26.5 for age 73). For example, if your balance is $500,000, your RMD is $18,868 ($500,000 ÷ 26.5).
What happens if I don’t take my RMD at age 73?
If you fail to take your RMD, you face a 25% penalty on the amount you should have withdrawn, which can be reduced to 10% if corrected within two years.
Can I withdraw more than my RMD at age 73?
Yes, you can withdraw more than the required amount, but doing so may increase your taxable income and push you into a higher tax bracket.
Are RMDs taxed at age 73?
Yes, RMDs are taxed as ordinary income and are subject to federal and, if applicable, state income taxes.
Can I reinvest my RMD into another retirement account?
No, RMDs cannot be reinvested into a tax-deferred account, but you can invest them in a taxable brokerage account or use them for other financial needs.
Do Roth IRAs have RMDs at age 73?
No, Roth IRAs do not have RMDs during the original account holder’s lifetime, but inherited Roth IRAs may have RMD requirements.
Can I use my RMD for charitable donations?
Yes, you can make a Qualified Charitable Distribution (QCD) of up to $100,000 per year, which counts toward your RMD and is not taxed.
How do RMD percentages change after age 73?
The RMD percentage increases each year, reaching 3.91% at age 74, 4.07% at age 75, and continuing to rise as you age.
The Bottom Line: What Is the RMD Percentage at Age 73?
Retirees must understand how RMDs work to avoid penalties and manage their tax liability effectively. The answer to what is the RMD percentage at age 73 is 3.77%, based on an IRS life expectancy factor of 26.5.
As retirees age, the required withdrawal percentage increases, meaning careful planning is essential. By using strategies like early withdrawals, Roth conversions, and QCDs, retirees can reduce their tax burden while ensuring compliance with IRS rules.
Staying informed about RMDs helps retirees maximize their retirement savings and maintain financial stability.