What a payment schedule means for your retirement account
A payment schedule is the timing and method you choose for taking money out of your retirement account. It determines how often you receive payments, how much arrives each time, and whether the account continues to exist after you start withdrawing. Different account types have different rules about when you can start, how much you must take, and what happens to your money if you die before you finish withdrawing it.
The schedule you pick affects your taxes, your other income sources, and how long your savings last. Some accounts let you choose freely; others require you to follow a specific formula. Some schedules are fixed once you start; others let you change course.
Key Takeaways
- Traditional IRAs and 401(k)s require you to start taking money at age 73 (as of 2023), and the amount is calculated by a formula based on your life expectancy.
- Roth IRAs have no required withdrawal age during your lifetime, so you control when and how much to take.
- You can take money in regular monthly or quarterly payments, as a lump sum, or in a mix of both.
- The payment method you choose affects your tax bill in the year you withdraw, so coordinating with other income matters.
Required minimum distributions and when they start
If you own a traditional IRA or a 401(k), the IRS requires you to begin withdrawing money by April 1 of the year after you turn 73. This is called a required minimum distribution, or RMD. The amount you must take each year is calculated by dividing your account balance on December 31 of the previous year by a life expectancy factor published by the IRS. The factor changes each year and assumes you will live to a certain age.
If you do not take the full RMD in a given year, you owe a penalty on the amount you missed. The penalty was 25% of the shortfall as of 2023, though this can change. You calculate and withdraw the RMD yourself; the IRS does not do it for you. If you have multiple IRAs, you can add up all the RMDs and withdraw the total from one account, but if you have multiple 401(k)s, you must calculate and withdraw the RMD from each one separately.
Roth IRAs are different: you do not have to take any money during your lifetime. Your beneficiaries will have to withdraw the money after you die, but you can leave it untouched for as long as you live.
Choosing between regular payments and lump-sum withdrawals
You can structure your withdrawals in several ways. A systematic withdrawal plan sends you a fixed amount on a schedule you choose — monthly, quarterly, or annually. You tell your account provider how much to send and when, and they handle it automatically. This approach spreads your tax bill across multiple years and gives you predictable income.
A lump-sum withdrawal means you take all or most of your money at once. This creates a large taxable event in a single year, which can push you into a higher tax bracket. However, it may make sense if you need a large amount for a specific purpose, such as paying off debt or making a major purchase.
You can also mix the two: take a lump sum when you need it and set up regular payments for the rest. Some people take their RMD as a series of monthly payments and then withdraw extra amounts as needed.
How payment schedules differ between account types
Different retirement accounts have different rules about when you can withdraw money and whether you must withdraw it. Traditional IRAs and 401(k)s allow penalty-free withdrawals starting at age 59½, but both require you to begin taking money at age 73. Roth IRAs let you withdraw contributions anytime without penalty, but you cannot withdraw earnings penalty-free until age 59½ and the account has been open for at least five years. SEP IRAs and straightforward IRAs follow the same RMD rules as traditional IRAs.
The flexibility you have also varies by account type. With a traditional IRA or Roth IRA, you choose how much to withdraw and when, except that traditional accounts and SEP and straightforward IRAs must meet their RMD minimum each year. With a 401(k), your plan document may restrict how often you can change your payment schedule or how much you can withdraw, so you need to check with your plan administrator. Once you buy an annuity, you cannot change the payment amount at all.
| Account Type | When You Can Start | Required Withdrawals | Payment Flexibility |
|---|---|---|---|
| Traditional IRA | Age 59½ (penalty-free) | Yes, starting at age 73 | You choose the amount and schedule, except for the RMD minimum |
| Roth IRA | Age 59½ for earnings; anytime for contributions | No required withdrawals during your lifetime | You choose the amount and schedule freely |
| 401(k) | Age 59½ (penalty-free) | Yes, starting at age 73 | You choose the amount and schedule, except for the RMD minimum; plan may restrict changes |
| SEP IRA | Age 59½ (penalty-free) | Yes, starting at age 73 | You choose the amount and schedule, except for the RMD minimum |
| straightforward IRA | Age 59½ (penalty-free) | Yes, starting at age 73 | You choose the amount and schedule, except for the RMD minimum |
Annuities and fixed payment schedules
Some people use an annuity to create a payment schedule. An annuity is a contract with an insurance company where you give them a lump sum of money (often from a retirement account) and they send you a fixed payment every month for the rest of your life, or for a set number of years. Once you buy an annuity, you cannot change the payment amount.
An annuity removes the risk that you will run out of money, because the payments continue as long as you live. However, it also removes flexibility: if you need extra money in a given month, you cannot take it from the annuity. If you die soon after buying the annuity, you may receive far less than you paid in. Annuities are taxed based on how much of each payment is considered a return of your original investment versus earnings.
Tax implications of different payment schedules
The timing and size of your withdrawals affect your federal income tax bill. Taking a large amount in one year can push you into a higher tax bracket, meaning more of your income is taxed at a higher rate. It can also affect whether you owe taxes on Social Security benefits and whether you pay higher premiums for Medicare.
If you have both traditional and Roth accounts, you can manage your tax bill by withdrawing from Roth accounts in years when your income is high and from traditional accounts in years when it is low. You can also spread withdrawals across multiple years to stay in a lower bracket. Some people delay taking their RMD until later in the year if they know their income will be lower then.
Withdrawals from traditional accounts are subject to federal income tax and, in some states, state income tax. Withdrawals from Roth accounts are not taxed if you meet the age and account-age requirements. If you withdraw early from either type, you may owe a 10% penalty on top of income tax.
What happens to your account after you die
Your payment schedule ends when you die, but your account does not disappear. Money left in the account goes to your beneficiary — the person or institution you named when you opened the account. The beneficiary must withdraw the money according to rules that depend on their relationship to you and the account type.
A spouse can roll the account into their own IRA and delay withdrawals. A non-spouse beneficiary must withdraw the entire account within ten years (as of 2023), though the exact rules vary by account type and state. If you name your estate as the beneficiary instead of a person, the account may be subject to probate, which can delay access to the money and increase costs.
Frequently Asked Questions
Can I change my payment schedule after I start withdrawing?
Yes, for most accounts. If you are taking regular payments from a traditional IRA or Roth IRA, you can stop, increase, decrease, or change the frequency at any time. If you have a 401(k), your plan document may have restrictions; check with your plan administrator. If you bought an annuity, you cannot change the payment amount, but you may be able to sell it to a third party.
What if I need more money than my regular payment schedule provides?
You can take an extra withdrawal from your account at any time, as long as you have not already withdrawn your RMD for that year. The extra amount is taxable income. If you are under 59½, the extra withdrawal may be subject to a 10% early withdrawal penalty, though some exceptions exist.
Do I have to take my RMD all at once, or can I spread it across the year?
You can spread it across the year in monthly, quarterly, or other regular payments. The total of all your withdrawals in the calendar year must equal or exceed the RMD amount by December 31. If you take too little, you owe a penalty on the shortfall.
How does my payment schedule affect my Social Security taxes?
Large withdrawals can increase your combined income, which determines whether you owe taxes on your Social Security benefits. If your combined income exceeds a certain threshold (which varies by filing status), up to 85% of your benefits become taxable. Spreading withdrawals across multiple years or timing them strategically can reduce this effect.
What if I have both a traditional and a Roth IRA?
You calculate the RMD for each account separately, but you can withdraw the total from either account or split it between them. Withdrawing from your Roth first preserves the tax-free growth in that account. However, once you withdraw from a Roth, you cannot put the money back unless you do a rollover within 60 days.