IRA Vs. 401(k) Minimum Distributions

401(k)s and IRAs grow on a tax-deferred basis.

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IRAs and 401(k)s both provide a temporary tax shelter for your retirement funds but you cannot shield your money from the Internal Revenue Service forever. Both account types are subject to require minimum distribution rules under which you are forced to make taxable withdrawals. However, RMD rules are slightly different for 401(k)s than IRAs.

Required Minimum Distributions

On both IRAs and 401(k) accounts, the size of your required minimum distribution, or RMD, depends on the balance of your accounts and your life expectancy as shown on annually produced IRS actuarial tables. If you are married, you can also base your RMD withdrawals on a joint life expectancy schedule for you and your spouse. For IRAs you calculate your total RMD based on balances held in all of your IRAs, but you can actually make the withdrawal from just one account. If you have more than one 401(k) you must make a separate withdrawal from each account and these withdrawals are also calculated separately from IRA withdrawals.

Start Date

You must take your first withdrawal from your IRA for the year in which you turn 70 1/2. Technically, you make the withdrawal any time between January 1 of the year you turn 70 1/2 and April 15 of the following year. For a 401(k), RMDs begin in the later of the year you turn 70 1/2 or the year that you retire. However, if you have an ownership stake of 5 percent or more in the firm that sponsors your 401(k), you must begin taking withdrawals in the year you turn 70 1/2 even if you are still employed.


You fund both Roth IRAs and Roth 401(k)s with after-tax contributions. Both account types grow on a tax-deferred basis. Withdrawals of earnings from both Roth IRAs and Roth 401(k)s are exempt from income tax as long as you hold the account for at least five years and make no withdrawals until you reach the age of 59 1/2. You do not pay taxes on withdrawals of principal from either account type. Roth IRAs are not subject to the RMD rules that pertain to other IRAs, but Roth 401(k) accounts are subject to the same RMD requirements as pre-tax 401(k)s. This means you must make a withdrawal even though no taxes are due on the withdrawal.


If you fail to take your RMD from either your 401(k) or IRA, you must pay a tax penalty equal to 50 percent of the RMD. You cannot avoid paying taxes by rolling your RMD into another IRA or a Roth IRA in the year that you make your withdrawal. However, if you retire before reaching the age of 59 1/2 you could roll your entire Roth 401(k) balance into a Roth IRA, in which case you would eliminate the need for a future RMD involving that sum of money.