Taking retirement distributions

After years of saving for retirement, you’re ready to start taking your distributions. Learn some smart ways to withdraw money from your retirement accounts.

Distribution basics

The IRS generally requires that you withdraw the tax-deferred money that you’ve accumulated in your non-Roth retirement accounts each year once you turn age 73. Required minimum distributions (RMDs), which are based on your life expectancy and account balances, are designed to help you gradually pay the taxes you owe on those assets. For more information on required minimum distributions, including at what point the distributions must start, read Required minimum distributions FAQ.

In addition to RMDs, the IRS has a number of other regulations governing distributions from retirement accounts. This table highlights some of the key rules.

Account type	Key rules
Traditional 401(k) and 403(b) accounts	All of your distributions are taxable You can begin taking distributions without penalty once you reach age 59½ or if you become disabled. In the event of your death, the beneficiary can take distributions. If you leave your company at age 55 or older, you may be able to begin taking penalty-free withdrawals in installments right away, provided that the plan document allows for this option. A one-time distribution at age 55 would still result in penalties. If you take a distribution before age 59½ and do not qualify for an early-withdrawal exception, you will be subject to a 10% federal tax penalty
Roth 401(k) and 403(b) accounts	Qualified distributions are tax- and penalty-free if the first Roth contribution was made at least 5 years prior to the distribution and if you have reached 59½ years of age. You may also take distributions penalty-free if you have become disabled. In the event of your death, beneficiaries can take distributions without penalty. For nonqualified distributions, earnings (not contributions) are taxable and may be subject to a 10% early withdrawal penalty For 2024 and later years, RMDs are no longer required from designated Roth accounts in a 401(k) or 403(b) plan.
Roth IRAs	Distributions from contributions can be taken at any time without taxes or a federal tax penalty Distributions from earnings are tax-free if your initial contribution to the account was made at least 5 years ago and you meet one of the following conditions: You’re age 59½ You’re disabled You’re purchasing a home for the first time (up to $10,000) Payments made to your beneficiaries after the 5-year period are also tax- and penalty-free. Payments made before the end of the 5-year period are penalty-free. Distributions from earnings are not subject to the 10% penalty as long as you qualify for an exception (same as exceptions for traditional IRAs) Distributions from a conversion amount must satisfy the Roth 5-year investment period to avoid the 10% penalty. The 10% penalty pertains only to the conversion amount that was treated as income for tax purposes Roth IRAs are not subject to RMDs over your lifetime
Traditional, SEP and SIMPLE IRAs	Distributions from contributions and earnings can be taken after age 59½ without a federal tax penalty Mandatory withdrawals must begin no later than April 1 of the year following the year you reach age 73 Distributions before age 59½ are subject to a 10% penalty tax unless you qualify for one of the following exceptions under section 72(t) of the Internal Revenue Code: You’re disabled You’re taking substantially equal periodic payments The distribution is for certain medical bills* The distribution is used for health insurance premiums during unemployment lasting at least 12 weeks* The distribution is for post-secondary education expenses* The distribution is used to purchase a home for the first time (up to $10,000)* The distribution is due to being a qualified reservist* Expenses for birth or adoption (Distributions must be made within one year after the birth or adoption date and are limited to $5,000 across an investor's accounts per birth or adoption.)^† The distribution is made while terminally ill^† The distribution is made in connection with federally declared disasters (up to $22,000 per individual)^† The distribution is for unforeseeable or immediate financial needs related to necessary personal or family emergency expenses (up to the lesser of $1,000 or the excess of your account balance over $1,000)^† The distribution is due to domestic abuse (up to the lesser of $10,000 as adjusted for inflation or 50% of the account balance)^† Distributions to your beneficiaries are also exempt from the 10% penalty Capital Group does not require documentation on these distributions. If made before age 59½, they are reported to the IRS as early distributions, with no known exception (IRS Code 1) on Form 1099-R. Consult a tax advisor to determine whether a distribution falls under a particular exception. ^† If your client wants to repay all or part of the distribution back to their IRA, they must do so within 3 years of the date they received the distribution.

A tip about distributions: Many retirees leave the workforce with savings in both after-tax and tax-deferred accounts. If you have enough income from after-tax accounts and other sources, you may want to save the distributions from your tax-deferred accounts for last.

Employer-sponsored retirement plan withdrawal options

Depending on the terms of your employer’s retirement plan, there are 4 ways you can handle the money in your account when you retire.

You can cash out with a lump-sum distribution

You could pay a higher percentage of your retirement savings in taxes with a one-time payment than you would if you were taxed over time for smaller distributions.

You could also pay a 10% early withdrawal penalty to the IRS unless you qualify for an exception. In addition, your employer is required to withhold 20% of the distribution for federal income taxes.

Of course, a one-time lump-sum distribution may make sense if you have other assets to live on and want to spend your retirement money for a specific purpose.
You can leave your money in the plan

Even though you’re retired, you may still be able to keep your money in your retirement plan if the balance is over $5,000, subject to the terms of your plan. Your investments (minus required distributions) will continue to have the opportunity to grow tax-deferred.

Consider this option if you’re happy with your plan’s provider and the choice of investments. Keep in mind that you’ll still be subject to the rules of your former employer’s plan and will need to begin taking RMDs after you turn 73 or, if later, the year in which you retire.

However, if you are a 5% owner of the business sponsoring the retirement plan, you must begin taking your RMDs when you turn 73, whether or not you are retired.
You can move the money into a rollover IRA

If you roll your retirement plan savings into an IRA, you can continue to enjoy tax-advantaged growth potential

You can roll Roth 401(k) and 403(b) accounts into a Roth IRA. Your non-Roth accounts can be rolled into traditional IRAs or Roth IRAs. You’ll owe the IRS any unpaid taxes on the taxable portion of a Roth IRA rollover; however, you won’t have to take RMDs during your lifetime

Rolling over to an IRA also allows you to:
- Avoid potential taxes and penalties you might owe if you cashed out
- Consolidate multiple retirement accounts
- Choose from a potentially wider range of investment options than your employer’s plan offered
- Gain greater control over withdrawals than your employer’s plan might offer. (Some employer plans allow only lump-sum distributions; withdrawals from IRAs can be taken over time.)
You can move the money to your new employer’s plan

If you come out of retirement and begin a second career, you can transfer your account balance directly from your former employer’s plan to your new employer’s plan if your new employer’s plan allows for it. Moving your money into your new employer’s plan allows you to retain the same potential for tax-deferred growth that you had in your former employer’s plan.

There are a few things to remember when moving your savings into a new employer’s plan:
- You’re limited to the investment options in the new plan, which may be different from those you’ve invested in up to now. However, you’ll have the convenience of being able to manage all your investments in one place.
- Your new plan may have different rules, such as withdrawal restrictions. Check the Summary Plan Description (SPD) or plan document for more information.
- If you transfer your vested balance into your new employer’s plan, you may delay taking required RMDs on the money beyond age 73 until you actually retire, unless you’re a 5% owner of the company.
- Consider the results, risks and expenses of the funds available in your new employer’s plan

Required minimum distributions

The IRS generally requires that you regularly withdraw the tax-deferred money that you’ve accumulated in your non-Roth retirement accounts when you reach age 73. RMDs, which are based on your life expectancy and account balances, are designed to help you gradually pay the taxes you owe on those assets.

When do RMDs start?

You are required to begin taking RMDs from your IRA account no later than April 1 of the year following the year you turn 73. RMDs from your employer plan should begin no later than April 1 following the end of the calendar year in which you turn 73 or retire, whichever is later. However, if you are a 5% owner of the business sponsoring the retirement plan, you must begin taking your RMD when you turn 73, whether or not you are retired.

Can a combined amount be taken from one account if I have multiple retirement accounts?

If you own more than one IRA, you can withdraw your RMD from each account, or you can combine your RMDs and withdraw the total from just one. The same is also true for 403(b) accounts. However, RMDs from 401(k), 457, money purchase and profit-sharing accounts must be taken separately.

How can I meet RMD requirements and still continue to save?

Of course, you can always withdraw more than the RMD, but you may want to consider leaving as much money as possible in your account(s) so your remaining savings have the opportunity to continue growing.

You also have the option to reinvest RMDs taken from non-Roth account(s) into a non-retirement account. Moving money from a retirement account to a non-retirement account is a taxable transaction, so you’ll have to pay income tax withholding on your distribution.

Need more information or advice?

There’s much to consider when it comes to planning what to do with your retirement savings. It’s important to work closely with your tax and financial professionals to make sure you make the right decisions for your situation.

Resources

Required minimum distributions brochure (PDF)

Related products

IRAs (traditional and Roth)

Other resources

Rollovers

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Taking retirement distributions

Distribution basics

Employer-sponsored retirement plan withdrawal options

You can cash out with a lump-sum distribution

You can leave your money in the plan

You can move the money into a rollover IRA

You can move the money to your new employer’s plan

Required minimum distributions

Resources

Related PDFs

Related products

Other resources