Determining When to Switch to the RMD

by Charles Rotblut, CFA

The decision as to how much to withdraw from a retirement portfolio is complicated not only by longevity risk, but also by tax issues. The commonly cited 4% withdrawal rate can be trumped by the Internal Revenue Service’s (IRS) required minimum distribution (RMD) rules for retirement plan accounts. Determining which withdrawal rate to use requires an understanding of the RMD rules and a calculator.

The Required Minimum Distribution

An RMD is the annual minimum amount a retirement plan account owner must withdraw beginning in the year he reaches 70½. An individual can delay the RMD if he retires after age 70½. However, if an individual holds an individual retirement account (IRA) or owns 5% or more of the business sponsoring the retirement plan, an RMD must be taken starting the year the individual turns 70½.

In this article


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Charles Rotblut is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at
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Most, but not all, retirement accounts are subject to the RMD rule. RMDs must be taken from traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs. Also subject to the RMD are all employer-sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans and 457(b) plans. Funds held in a Roth IRA are not subject to RMDs as long as the account holder is alive, but funds held in a Roth 401(k) account are subject to RMDs. If you have questions about whether a specific retirement account is subject to required minimum distributions, contact a tax professional.

If the RMD is taken from a tax-deferred account, the distribution is taxable in the year it was taken. If the full RMD is not taken, the amount not withdrawn is subject to a 50% tax.

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Calculating the RMD

The required minimum distribution changes every year based on an account holder’s age. It is calculated by dividing the account balance at the end of the immediately preceding calendar year by a distribution period. The distribution period is published by the IRS in its Uniform Lifetime Table. A retiree who is 70½ and has a spouse not more than 10 years younger will have a distribution period of 27.4. Assuming his traditional IRA account balance was $100,000 at the end of last year, his RMD will be $3,649.63 ($100,000 ÷ 27.4 = $3,649.63). This is the equivalent of 3.65% of his IRA balance.

A required minimum distribution must be calculated separately for every retirement account a retiree owns that is covered under the RMD rules. If more than one IRA is owned, the cumulative RMD can be taken from one retirement account. The same rule applies to individuals owning more than one 403(b) contract. RMDs from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each account.

The IRS publishes two tables with distribution periods. The Uniform Lifetime Table is for unmarried retirees, retirees whose spouses are not more than 10 years younger or those whose spouses are not the sole beneficiaries of their IRAs. The Joint Life and Last Survivor Expectancy table is for retirees whose spouses are more than 10 years younger and are the sole beneficiaries of their IRAs. These tables are published on the IRS website.

Choosing a Distribution Rate

The 4% withdrawal rate is designed to be adjusted each year for inflation. A retiree starts by withdrawing 4% out of his entire retirement savings, regardless of the type of account those savings are held in, during the first year of retirement. Each year, the amount withdrawn is increased by the rate of inflation. Adhering to this strategy results in high likelihood of not running out of money before death, assuming a diversified portfolio is used. Early in retirement, following the 4% withdrawal rate will allow for a larger dollar amount to be withdrawn than if a rate based on the RMD is followed. The 4% rule is intended to encompass savings in all retirement accounts, including Roth IRAs.

As the retiree ages, the amounts withdrawn under the 4% withdrawal rate scenario change. Though the dollar amount withdrawn is increased by the prevailing rate of inflation, the increases may not be large enough to meet RMD amounts during a low to moderate inflationary environment. Using the withdrawal rates published in my article “Taking Retirement Withdrawals From a Fund Portfolio” (May 2013 AAII Journal), I found that the RMD became larger than the 4% adjusted withdrawal rate 11 years into retirement, assuming the person retired at age 65.

In a real-life scenario, the point at which the RMD becomes larger than the 4% withdrawal rate depends on many factors, including when a person retired, the rate of inflation and the type of accounts held. The proportion of savings held in a Roth IRA can be a significant factor in making the determination, since they are not subject to the RMD rules.

The presence of an annuity adds another layer of complexity. Non-qualified annuities are exempt from the RMD rules, but an annuity held within an IRA is not. (Specific rules apply to annuities, and questions about them should be directed to a tax professional.) Plus, to the extent an annuity provides enough income, less than 4% may need to be withdrawn from other retirement accounts to meet living expenses. Pensions and Social Security benefits may also allow a retiree to lower his actual withdrawal rate below 4%. Conversely, some retirees may have no choice but to withdraw more than 4% to meet living expenses, even though that increases the risk of running out of money late in life.

Since so many factors can influence how much should be withdrawn from retirement savings, the decision as to whether to switch to basing the withdrawal amount on the RMD is one that needs to be revisited every year. Due to the complexity of RMD rules, there is not an easy way to determine the optimal withdrawal rate. One rule of thumb is that the more money that is held in accounts not subject to RMDs (such as Roth IRAs), the later in life a retiree will be forced to base their withdrawal amount on RMDs.

The IRS publishes a helpful list of answers to frequently asked questions about RMDs ( On this webpage, you will find links to the distribution tables and worksheets for

—Charles Rotblut, CFA, Editor, AAII Journal

Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at


Dave Gilmer from WA posted over 3 years ago:

I just don't see how you can make any reasonable prediction on when the "Classic" 4% rule and the RMD rates will "come together," since one is based on a starting dollar amount and the other is based on a portfolio percentage. The intersection is thus highly dependent on market returns and how much money is actually withdrawn from the portfolio.

The biggest issue, which you do mention, is that very few have 100% of their retirement money in an IRA type investment. If they do, it seems like very poor planning on their part, especially as more and more 401k Roths become available.

Charles Rotblut from IL posted over 3 years ago:


I gave an example of when the change would have occurred based on a model, but in the very next paragraph, I wrote:
"In a real-life scenario, the point at which the RMD becomes larger than the 4% withdrawal rate depends on many factors, including when a person retired, the rate of inflation and the type of accounts held. "


Kenneth Espanola from RI posted over 3 years ago:

Not sure what "Loading" is talking about as we have been sold a bill of goods over the years. Stash money in tax deferred vehicles and the government will not tax you on the principal or the interest, capital gains etc until it is taken out. I don't see that as poor planning. Hindsight is always 20/20.

John Horman from IL posted over 3 years ago:

I was told to use tax deferred money last by my tax accountant because ira's are growing deferred util withdrawal.

bob from florida posted over 3 years ago:

you don't mention annuities,i would like to see how to withdraw from annuities someday.

Macallan from Texas posted over 3 years ago:

If you don't need more, take the RMD. Why not?

ras from CO posted over 3 years ago:

I am 76 and need to take more than 4% out of the total of my accounts. The figures show I can only live until be it.

David Lamb from UT posted over 3 years ago:

Percentage rules of thumb are worthless. Nobody needs the same percent. I don't happen to need any (being an AAII member) so I either take the MRD by moving stock from my IRA acct to our joint account, or moving cash there. That's not complicated. But for those who do need the money it seems to me they should figure out the absolute minimum amount (not percentage) they need to get by at and go with that amount. It will either get them through or it won't. But diddling with percentages is a waste of time and most likely gives false hope where it's not justified.

hmarrett from New York posted over 3 years ago:

Remember the RMD take out is required even if you do not need the money for living expenses. Also the 4% amount and the inflatiion adjustment amount are maximum amounts. If you do not need the mony do not take it out.

Robert from PA posted over 3 years ago:

I have been retired for a year now and am receiving monthly distributions amounting to six percent.I am very blessed to average 10 to 12 % annually and investing very conservative.Not only have I doubled my working salary,but also my 401 continues to flourish.I give all credit to GOD,you can not out give him.Praise the Lord.

Richard Billington from MI posted over 3 years ago:

Just because the RMD requires you to take the money out of your IRA/401K does not mean you have to spend it. Managing your money needs and complying with the RMD are different issues.

Dave from Washington posted over 3 years ago:

It seems the site is having trouble displaying the names on the post. This has been going on for some time??

In any event the comment I made about having all your money in just one tax-deferred vehicle is poor planning relates to a couple of well know facts:

1. One, there is no mathematical difference in the long term return of a Roth or non-Roth account, given the same tax situations on both ends of the transaction and since we really have no way to predict tax rates 20-50 years in the future the only logical assumption is to hedge our bets by doing some of each. How much of each should be based on your own personal situation.

2. Given #1 above if you have some of both types of accounts, tax-free and tax-deferred, you are a lot closer to essentially controlling whatever tax rate you want in retirement. In so doing - which I would hope would be to lower your tax rate and even bring it to zero in some cases, you will have a "chunk" of money (based on your IRS exemptions and deductions) that you can get out of your "tax-deferred" IRA and pay very little or no tax at all - thus making it a very valuable investment indeed.

Dave from Washington posted over 3 years ago:

My earlier comment about the 4% crossover was really more to find out if you have corrected your thinking on how the 4% rule is suppose to work, because in your article last month you seemed to have mis-represented how the classic 4% rule actually works and if you are still using the same calculation, then it stands to reason that the only correct statement is the conclusion - that you can't really tell when it will cross over the RMD.

Charles Rotblut from IL posted over 3 years ago:


An addendum assuming the initial withdrawal amount is changed can be found at:

The different calculation really does not change the example I gave in this article about when to switch to the RMD. As I said earlier, it is just an example and the actual point as to when the RMD exceeds 4% withdrawals depends on several factors.


M N. Becci from VA posted over 3 years ago:

Talking about "when to switch" shows a misunderstnding of the two separate issues.

No matter how one calculates their annual investment portfolio withdrawal amount (fixed 4%, initial 4% with annual inflationary increases in amount or in w/d %, % with an annual cap & floor, or recalculated each year, etc.) he or she should figure out which method works best & easiest for them & stick to it, regardless of age or RMD issues. The "investment portfolio" is not limited to the various retirement accounts but also includes all taxable accounts other than one's "current spending account" & emergency reserve account.

RMDs only involve withdrawals from IRAs, 403b & similar tax-deferred retirement accounts, and are totally independent of and separate from "investment portfolio" withdrawals. In any year that the RMD amount exceeds the annual investment portfolio withdrawal amount (determined by the 4% rule or whatever varient one is using), the excess is just transferred to one of the taxable accounts in the investment portfolio, where it continues to grow until needed to fund a future 4% withdrawal.

The two distributions really operate independently & do not affect each other.

William from CA posted over 3 years ago:

The Virginia post is correct. Hopefully, you have saved and invested well so you will have a comfortable retirement. If you have always lived below your means, you may be able to splurge a little in retirement - and even help your children and grandchildren if you want to do so. I have been retired now for about 20 years and my net worth is increasing in spite of a 6+% withdrawal rate this year(RMD) from my IRA.

rdv from Florida posted over 3 years ago:

Thanks for the article. Any that leads to more thinking by the readers is worthwhile.
This instance appears rather straightforward to me (as to wonder what I'm missing):

1) If I'll manage to get by on only the 3.65% withdrawal imposed by RMD, great, stick to it (plus inflation) rather than 4%.
2) If too much even at 3.65%, reinvest the excess (or better yet, get a life, lol)
3) If RMD is not enough to live on, increase to 4% withdrawal rate (and adjust expenditures if still strained).
4) If and when RMD exceeds what would be the corresponding inflation adjusted 4%, reinvest the amount in excess of 4%.

GaryOwen from NH posted over 3 years ago:

Three years ago I converted part of my traditional IRA to a Roth. Having channeled all my savings during working years into my 401K, I converted it to an IRA, which I do not consider unwise. My only regret: not having converted it all to a Roth at the outset. savings or income, I had to pay taxes due out of the amount converted, which, of course could immediately be withdrawn tax free. However, I needed to wait three years before any gains could be withdrawn. Now the Roth is worth about 20% more than the traditional, and I will not withdraw anything from it until the traditional is depleted.
The Roth being immune to required minimum withdrawal is no advantage to me unless, at 74, I am fortunate enough to get a job. My small Army pension and monthly ss payments fall short of my needs so I'm withdrawing more than the required minimum anyhow.
If I were to get a decent job I'd immediately convert the remaining traditional to a Roth (paying the taxes out of my income), and begin tax free withdrawals from the three year old Roth. Absent that happy situation, the plan is to withdraw exclusively from the traditional until it's exhausted, then go to the Roth, which (I hope) will have increased more.

harryrich from OH posted over 3 years ago:


I simply can't see a safe alternative to calculating both the RMD and the percentage based draw goal each year. I'm signing up for automatic RMD services and have created a spreadsheet where I plug in yearend balances, CPI-U and the IRS span. It gives me the added draw or percentage reinvestment needed to reconcile the draw goal with the RMD.

As you point out, cases differ. In my case, the initial draw will be 3% which effectively reserves 25%+ of assets for contingencies not covered in other ways.

Thanks for you insights,


Mike S. from IL posted over 3 years ago:


I think you need to clarify exactly what is the original "4% rule." (I thought Bengen meant to increase the original draw amount by inflation, not the draw percent. The former is more conservative if the portfolio value is increasing.) To run the calculations both ways is fine, but it's really two different rules of thumb.

Why would that make a difference? - Only to someone using a rule blindly as a guide for how much to withdraw. I would hope that most investors are smart enough and able to make adjustments to portfolio withdrawal rate (and standard of living) in response to changing market conditions. If not, which rule they follow is more important.

Rob Blue from FL posted over 3 years ago:

Your article about RMD's and the 4% rule got me thinking about how interest and dividend income play into the mix. None of the portfolio trackers that I am familiar with have a spreadsheet column that automatically pulls in the past 12 month's interest or dividend income for a given investment. I know interest and dividend information is available, but would like to avoid having to key it in manually.

Do you have a portfolio tracker or spreadsheet in mind that automates this information input?


Anthony Babich from MA posted over 3 years ago:

Kudos for pointing out the Minimum Required Distribution, which most articles on withdrawals tend to ignore. As you pointed out, at age 70, the amount required is the December 31 value of the account divided by 27.4, which was taken from IRS Publication 590, Appendix C Uniform Lifetime Table - this is slightly less than 4%. However, by 75 this number is 22.9 and by 80 it's18.7 (over 5%). If you don't take out the minimum, the IRS will charge you 50% of the difference - the latter is sufficient incentive to withdraw the minimum. Every retiree should download a copy of Publication 590.

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