IMPORTANT DISCLOSURE INFORMATION
The following presentation by New England Capital Financial Advisors, LLC (“NECFA”) is intended for general information purposes only. No portion of the presentation serves as the receipt of, or as a substitute for, personalized investment advice from NECFA or any other investment professional of your choosing. Please see additional important disclosure at the end of this penetration. A copy of NECFA’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.newenglandcapital.com.
Understanding RMDs: What They Are and How to Calculate Them
If you’ve been saving diligently for retirement in a tax-deferred account—like a traditional IRA or a 401(k) you’ve probably heard of something called an RMD or Required Minimum Distribution.
But what exactly is it, why is it required, and how do you figure out how much to take?
Let’s break it down.
What Is an RMD?
An RMD is the minimum amount of money you must withdraw each year from certain retirement accounts once you reach a specific age. The IRS requires this because your traditional retirement accounts—like IRAs and 401(k) were funded with pre-tax dollars. That means you haven’t paid taxes on that money yet. So when you retire, the IRS eventually wants its cut. RMDs are how they make sure that happens.
When Do RMDs Start?
The rules have changed recently, so it depends on your birth year.
- If you were born between 1951 and 1959, they start in the year you turn 73.
- For those born in 1960 or later, RMDs begin in the year you turn 75.
Your first RMD must be taken by April 1st of the year after you reach your starting age. After that, every RMD must be taken by December 31st each year.
Which Accounts Are Affected?
RMDs apply to most tax-deferred accounts, including:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k), 403(b), and 457 plans
They don’t apply to Roth IRAs while the owner is alive — since Roth contributions are made with after-tax dollars.
How RMDs Are Calculated
Here’s the math behind it: Each year, your RMD is based on your account balance at the end of the previous year and your life expectancy factor, which the IRS publishes in a table.
The basic formula is:
RMD = Account Balance (Dec 31 of last year) / Life Expectancy Factor
Let’s say your IRA was worth $500,000 on December 31st of last year. If you’re 73 years old, your life expectancy factor from the IRS table is 26.5.
That means your RMD would be: $500,000÷26.5 = $18,868
That’s the minimum amount you must withdraw this year.
Why It Matters
If you don’t take your RMD, the IRS charges a steep penalty — 25% of the amount you should have withdrawn. That can be reduced to 10% if you correct it quickly, but it’s still not something you want to risk.
RMDs also affect your taxable income, which can impact your Medicare premiums or even how your Social Security benefits are taxed. That’s why planning your withdrawals strategically is so important.
Wrapping Up
So, to recap:
- RMDs are required withdrawals from tax-deferred accounts.
- They start between age 73 and 75, depending on when you were born.
- The amount is based on your account balance and the IRS life expectancy table.
- And taking them on time helps you avoid penalties and surprise tax bills.
If you turn 73 in 2026, we will be reaching out over the next month to discuss your RMD and your options.
I’m Liam Wallace. Thanks for watching — and here’s to making your retirement money work smarter for you.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by New England Capital Financial Advisors, LLC [“NECFA”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from NECFA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. NECFA is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the NECFA’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.newenglandcapital.com. Please Note: NECFA does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to NECFA’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a NECFA client, please contact NECFA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.