Once you reach a certain age, the IRS requires you to take annual withdrawals — called required minimum distributions (RMDs) — from certain retirement accounts. This article explains what RMDs are, when you need to take them, and how to handle IRS excise penalty taxes, including how to claim a reduction or waiver.
A required minimum distribution (RMD) is an annual withdrawal you need to take from certain retirement accounts once you reach a specific age. The Internal Revenue Service (IRS) requires these withdrawals to make sure tax-advantaged retirement accounts are not used indefinitely — allowing the IRS to collect taxes on accumulated funds.
RMDs are required from:
Employer-sponsored plans, including 401(k), 403(b) plans, 457(b) plans, and profit sharing plans
Traditional, SEP, and SIMPLE IRAs
Note: Roth IRAs are not subject to RMDs.
Not taking RMDs on time or for the correct amounts may result in penalties, so it's important to understand how they work and when they're required.
Your RMD age determines when you need to start taking RMDs. Due to changes in the law, your RMD age is based on the year you were born.
Born before Jul 1, 1949: RMD age is 70½
Born Jul 1, 1949 – Dec 31, 1950: RMD age is 72
Born Jan 1, 1951 – Dec 31, 1959: RMD age is 73
Born Jan 1, 1960 or later: RMD age is 75
Your required beginning date (RBD) is the deadline to take your first RMD.
You need to take your first RMD no later than Apr. 1 of the year following the year in which you reach your RMD age.
While your first RMD may not be due until Apr. 1 of the following year, if you request a rollover during the year you reach your RMD age, you need to take your RMD before the rollover can occur.
Your RBD also depends on:
Whether you are still working for the employer sponsoring the plan
Whether you own any part of the business sponsoring the plan
If you own more than 5% of the business, your RBD is Apr. 1 of the year following the year in which you reach your RMD age.
If you do not own more than 5% of the business, your RBD is Apr. 1 of the year following the year in which you either reach your RMD age or stop working for the business sponsoring the plan — whichever is later.
Note: The option to delay your RBD until you stop working depends on the elections made in your 401(k) plan document. All Gusto Retirement plans include this delay, but rules may differ if you have an account with another employer.
While your first RMD may not be due until Apr. 1 of the following year, if you request a distribution or rollover during the year you reach your RMD age (or leave employment), you need to take your RMD before the distribution or rollover can take place.
If you took RMDs in a prior year, you need to continue taking them even if your ownership percentage changes.
Examples
Rory owns 25% of Last Centurion Enterprises and is still working there when he turns 73 on Jul 14, 2025. Because he owns more than 5% of the business, his RBD is Apr. 1, 2026 — even though he is still employed. However, if Rory decides to roll over his account balance to his IRA on Nov. 1, 2025, he needs to take his RMD before completing the rollover.
Amy owns 3% of Last Centurion Enterprises and is still working there when she turns 73 on Apr. 2, 2025. Because she is still working and does not own more than 5% of the business, her RBD will not be until she actually leaves employment.
River left Last Centurion Enterprises in 2018 and turns 73 on Aug. 28, 2025. Because she is no longer working for the company, her RBD is Apr. 1, 2026.
RMDs need to be taken annually, no later than Dec. 31, for all years after you pass your RBD. This includes the year following the year in which your first RMD is due — regardless of whether you delayed taking it until Apr. 1.
For example, if you turn 73 in 2025 but delay taking your 2025 RMD until Apr. 1, 2026, you still need to take your 2026 RMD no later than Dec. 31, 2026.
Your RMD amount is calculated by dividing your account balance as of Dec. 31 of the previous year by your life expectancy factor. For 401(k) accounts, only your non-Roth balance is used in this calculation.
Generally, your life expectancy factor is taken from the IRS uniform life expectancy tables — unless your spouse is your sole beneficiary and is more than 10 years younger than you, in which case the factor is taken from the IRS joint life expectancy tables.
For IRA savers: While your RMD needs to be calculated separately for each IRA you hold, you can withdraw the combined total from one IRA or spread it across more than one.
Any portion of your RMD that is pre-tax is taxable as ordinary income and subject to federal and state withholding requirements.
For IRA savers: Any non-deductible amount held in your IRA that is included in your RMD will not be counted as ordinary income.
Two of the most common IRS-imposed excise penalty taxes for 401(k) participants and IRA owners are:
RMD excess accumulation penalty tax — applied when RMDs are not taken on time
Early distribution penalty tax — a 10% penalty applied to distributions taken before you reach age 59½
You may be able to reduce or eliminate either excise penalty tax by filing IRS Form 5329.
If you miss the RMD deadline or only take a portion of your RMD for the year, you will owe an excise penalty tax equal to 25% of the RMD amount you did not distribute on time.
Reduced penalty
The penalty may be reduced to 10% if you meet both of the following requirements:
Remove the full RMD amount within the correction window — generally within two years, but ending earlier if the IRS issues a deficiency notice or assesses the tax
Submit a corrected tax return for the year the RMD was missed
Waived penalty
In certain circumstances, the IRS may waive the penalty altogether. To qualify, you need to establish that:
The failure to take the RMD was due to a reasonable error
You are taking appropriate steps to correct the error and prevent it from happening again
Important: Consider consulting with a tax advisor if you wish to apply for the RMD penalty waiver.
Because 401(k) accounts and IRAs are intended for retirement savings, the IRS imposes a 10% excise penalty tax on the taxable amount if you take a distribution before reaching age 59½ and do not roll that money into another retirement plan or IRA.
Claim an exception to the early withdrawal penalty
There are numerous exceptions to the early withdrawal penalty tax. The Form 1099-R you get from your 401(k) or IRA custodian often does not show whether you qualify for one of these exceptions — however, you may still be eligible.
The IRS recognizes that 401(k) and IRA custodians do not always have the information to determine if an exception applies. You may still be able to claim a relevant exception when filing your taxes.
How you request an RMD depends on whether you have a 401(k) or an IRA.
If you are eligible for an RMD with Gusto Retirement, you will get a notification in your retirement dashboard in Jan. (or when you first become eligible, if later). The task will include instructions for submitting your RMD request form.
You can also find the form in the Documents section of your dashboard.
Choose the path that matches how you signed in.
Sign in to Gusto and go to Benefits. Under Savings, find 401(k) and select View, then select Manage 401(k)
Sign in directly at the Gusto Retirement sign-in page.
Once you're in your 401(k) dashboard, follow these steps to find the form.
Go to Documents in the main menu.
Select the Resource Library tab.
Under Forms and Templates, find the RMD Distribution Form.
After you submit the RMD request form, standard processing and shipping take about 3 – 4 weeks. If you upload an RMD form outside of the RMD dashboard task, contact us to request processing.
To take your RMD from your Gusto IRA, go to Transfers in your dashboard and select Withdraw Cash.
This information is for general education purposes only and is not intended to be tax advice. We encourage you to consult a qualified tax professional before requesting a distribution.