When you turn 72, the IRS requires you to start withdrawing money from your 401(k) each year. These withdrawals are called required minimum distributions (or RMDs), and it’s important to understand how they work because if you don’t withdraw the correct amount by Dec. 31 of each year, you could get hit with a big penalty.

What Is an RMD?

While many 401(k) participants know about the early withdrawal penalties for 401(k) accounts, fewer people know about the requirement to make minimum withdrawals once you reach a certain age. These are called required minimum distributions or RMDs, and they apply to most tax-deferred accounts.

Why your first RMD is different

There is a slight variation in the rule for your first RMD: You actually have until April 1 of the year after you turn 72 to take that first withdrawal. For example, say you turned 72 in 2021. You would have until April 1, 2022, to take your first RMD.

At what age do RMDs start?

You must take your first RMD the same year you turn age 72. For your first RMD only, you are allowed to delay the withdrawal until April 1 of the year after you turn 72.

What are the RMD deadlines?

Aside from the April 1 deadline available only for your first RMD, the regular deadline for your annual RMD is Dec. 31 of each year. That means by Dec. 31 you must withdraw the required amount, either in a lump sum or in smaller increments over the course of the year.

The amount of your RMD is determined by tables created by the IRS based on your life expectancy, and the age of your spouse, if you’re married. If your spouse is more than 10 years younger than you, or less than 10 years younger, the calculation is slightly different (more details below).

Penalties

The basic penalty, if you miss or forget to take your required minimum distribution from your 401(k), is 50% of the amount you were supposed to withdraw. Let’s say you were supposed to withdraw a total of $10,500 in a certain year, but you didn’t; in that case you could potentially get hit with a 50% penalty, or $5,250.