Money
How RMDs Are Calculated on a $500,000 Retirement Account
By Bear Creek Staff, . Bear Creek Capital Network.
The Motley Fool published a detailed walkthrough of how required minimum distributions work, using a $500,000 account as the central example.
What an RMD actually is
A required minimum distribution, or RMD, is the smallest annual withdrawal the IRS requires from tax-deferred retirement accounts, including traditional IRAs, 401(k) plans, 403(b) plans and similar vehicles. The logic is straightforward: contributions to those accounts reduced taxable income on the way in, so the government eventually collects. Roth accounts are exempt from RMD rules while the original owner is alive, though Roth beneficiaries are subject to them.
When they start and what triggers the penalty
The starting age depends on birth year. Anyone born between 1951 and 1959 must begin taking RMDs at 73; those born in 1960 or later do not have to start until 75. The annual deadline is December 31, with one exception: the very first RMD can be pushed to April 1 of the following year. Someone who turns 73 in 2026, for instance, could delay that first withdrawal until April 1, 2027, though their second RMD would still be due by December 31, 2027.
Missing the deadline is expensive. The IRS imposes an excise tax equal to 25% of the amount not withdrawn. That drops to 10% if the shortfall is corrected within two years, and can be waived entirely if the account holder demonstrates a reasonable error, in either case requiring a Form 5329 filed with the tax return.
How the math works
The calculation divides an account's December 31 balance from the prior year by a life expectancy factor published by the IRS. Most account holders use Table III, the Uniform Lifetime table. At age 73, that factor is 26.5; at 75, it is 24.6.
The piece walks through three examples. In the first, a 73-year-old with a $500,000 traditional 401(k) balance as of December 31, 2025 divides that balance by 26.5, producing an RMD of $18,868.
The second example involves a 75-year-old holding equal balances across a traditional IRA and a traditional 401(k), $250,000 in each. Because 401(k) RMDs must be calculated and withdrawn separately from IRA RMDs, each account generates its own $10,163 obligation, for a combined $20,326 that cannot be consolidated.
The third example uses the same split balance, but both accounts are traditional IRAs. The RMD amounts are identical, yet the rules differ: IRA holders may combine their separate RMD totals and pull the full $20,326 from a single account if they choose. The 403(b) plan follows a similar aggregation rule, allowing holders to combine RMDs across 403(b) accounts.
What this means in practice
The mechanics matter most to anyone approaching 73 or 75, and to beneficiaries who inherited tax-deferred accounts at any age. The account type determines whether withdrawals can be consolidated, which affects both tax planning and cash-flow management.
One gap the piece does not address is the interaction between RMDs and Social Security taxation thresholds. A forced withdrawal large enough to push combined income above $34,000 for a single filer, or $44,000 for a couple, can make up to 85% of Social Security benefits taxable. That is the calculation worth running before the December 31 deadline, not after.
Bear Creek Capital Network publishes content for informational and educational purposes only. Nothing in this article constitutes financial, investment, tax or legal advice, or a recommendation to buy or sell any security. Consider your own circumstances and consult a qualified professional before making financial decisions.