The IRS Divisor That Turns a 73-Year-Old’s $900,000 401(k) Into a $33,962 Required Withdrawal, Even if the Market Falls

A falling market can knock thousands off a retiree’s 401(k) without cutting the withdrawal the IRS requires. Consider someone turning 73 this year whose fully pretax account held $900,000 last December 31. Under the IRS’s standard table, the first required minimum distribution (RMD) is about $33,962, even if the balance has since fallen.

That amount comes from dividing last year’s closing balance by 26.5. Today’s account value gets no say. Checking the balance date, your age and the correct IRS table helps you avoid taking too little or pulling out more taxable money than necessary.

Divide by 26.5 and Forget the Rule-of-Thumb Percentages

The IRS Uniform Lifetime Table, used to calculate required withdrawals, tells a 73-year-old to divide the account balance by 26.5. You can read that number as the count of years the IRS assumes the account will be spread over. You divide the balance by it.

For our retiree, $900,000 divided by 26.5 equals $33,962.26. Rounding off to $33,962 is fine for a household budget. Keep the cents when you check the plan’s figure, because that’s where small differences turn up.

Treat 26.5 strictly as a divisor. If you count it as a withdrawal rate, you end up pulling out far more than the law requires. Extra withdrawals from a fully pretax 401(k) add to ordinary income on that year’s return.

Use the age you turn during the year, even if your birthday falls in December. Turning 73 in December means using the age-73 figure for that year’s required withdrawal.

Why Last December’s Statement Outranks Today’s Balance

The IRS calculates each account’s RMD by dividing the prior December 31 balance by the life expectancy factor. That date locks in the input before the distribution year starts.

Many retirees miss this fixed date. Suppose markets fall in the spring and the account shrinks, but the required amount still comes from last year’s higher value. Imagine instead the account grows. The requirement remains the same until next year’s calculation picks up the gain.

So a falling market means a fixed withdrawal takes a bigger bite out of what’s left. Retirees who decide ahead of time when to sell, instead of reacting to a bad quarter, keep control of that trade-off.

Plan balances sometimes need adjusting around year-end, for example when a rollover is still in transit, so ask the administrator to confirm the exact December 31 value its calculation used.

Confirm You Have the Right Table and the Right Account

The Uniform Lifetime Table covers single account holders. It also covers married individuals whose spouse is no more than 10 years younger or is not the sole beneficiary. Most 73-year-olds fall into one of those groups.

The exception can mean a smaller withdrawal. If the sole beneficiary is a spouse more than 10 years younger, the account holder generally switches to the Joint Life and Last Survivor Expectancy table. Its longer distribution period results in a smaller required withdrawal.

Those who inherit a 401(k) follow separate rules. For many of them, the account must be emptied by the end of the 10th year after death. The calculation above applies only to the original account holder.

Having more than one account adds a trap. Investors with multiple IRAs can add up their required amounts and take the total from one IRA or from more than one IRA. With two or more 401(k)s, you have to calculate and take an RMD separately from each one. Doubling up the withdrawal from one plan leaves the other plan short.

Check the Plan’s Number Before the Deadline Hits

1. Get the administrator’s calculation in writing. Check that the balance it used matches your December 31 statement to the cent, then divide by the factor for your age to confirm the result.
2. Check the age and the beneficiary designation together. Make sure the plan used your birthday age for this year. If your spouse is more than 10 years younger and the sole beneficiary, ask whether the plan applied the joint table. Some plans default to the uniform table.
3. Repeat the check for every plan, then think about combining. A required distribution cannot be rolled over, so take each plan’s RMD first. After that, moving the remaining balances into fewer accounts makes every later year simpler.

Timing is the last decision. The first RMD can wait until April 1 of the following year, but every RMD after that is due by December 31. Waiting puts two distributions in a single tax year. That is the kind of first-year tax bomb we walked through defusing in a free guide here. Taking the first withdrawal this year avoids stacking two required withdrawals on next year’s tax return.

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