If you've been diligently saving in a Traditional IRA, 401(k), or other pre-tax retirement account, the IRS has a plan for when it collects those deferred taxes: Required Minimum Distributions (RMDs). Starting at age 73, you must withdraw a minimum amount each year — whether you need the money or not. Failing to take your RMD triggers a 25% penalty on the amount you should have withdrawn.
Understanding RMDs is essential retirement planning.
Disclaimer: RMD rules are complex and have changed multiple times. This article reflects rules as of 2024. Consult a licensed tax professional or financial planner for guidance specific to your situation.
What Accounts Have RMDs?
RMDs required:
- Traditional IRA
- SEP-IRA
- SIMPLE IRA
- 401(k), 403(b), 457(b) plans
- Inherited IRAs (special rules — see below)
No RMDs:
- Roth IRA (original owner — one of the biggest advantages of Roth accounts)
- Roth 401(k) (as of 2024, under SECURE 2.0 Act changes)
When Do RMDs Start?
The age changed under the SECURE 2.0 Act (2022):
- Born 1950 or earlier: RMDs started at 72
- Born 1951–1959: RMDs start at 73
- Born 1960 or later: RMDs start at 75
Your first RMD can be delayed until April 1 of the year after you reach your required beginning date — but delaying means taking two RMDs in one year, which pushes income higher and increases taxes.
Most financial planners recommend taking the first RMD in the year you turn 73 (not delaying) to avoid the income spike.
How RMDs Are Calculated
The RMD amount is calculated each year by dividing your account balance (as of December 31 of the prior year) by a life expectancy factor from IRS tables.
Formula: Account Balance ÷ Distribution Period = RMD
The distribution period comes from IRS Publication 590-B life expectancy tables. For most account owners, the Uniform Lifetime Table is used. At age 73, the distribution period is 26.5; at 80 it's 20.2; at 90 it's 12.2.
Example:
- Traditional IRA balance on December 31, 2024: $800,000
- Age in 2025: 73
- Distribution period: 26.5
- 2025 RMD: $800,000 / 26.5 = $30,189
As the account grows and the distribution period shrinks with age, the RMD amount increases — both as a percentage of the account and potentially in absolute dollars.
Multiple Accounts: Aggregation Rules
Traditional IRAs: You may aggregate across all your Traditional IRAs and take the combined RMD from any one account (or any combination). Calculate the RMD for each account, add them, take the total from wherever you prefer.
401(k), 403(b), etc.: Each employer plan's RMD must be taken from that specific account. You cannot aggregate workplace plans or offset with IRA RMDs.
The Penalty for Missing an RMD
Prior to 2023: 50% penalty on the amount not withdrawn. As of 2023 (SECURE 2.0): 25% penalty, reduced to 10% if corrected within 2 years through the IRS's correction procedures.
Still brutal. On a $30,000 RMD you forget, the penalty is $7,500 (or $3,000 if corrected within 2 years). Set calendar reminders.
RMDs and Taxes
RMD withdrawals from pre-tax accounts are taxed as ordinary income in the year received. Large RMD amounts can:
- Push you into a higher tax bracket
- Increase Medicare IRMAA surcharges (income-based premium adjustments for Medicare Part B and D)
- Make up to 85% of Social Security benefits taxable
- Reduce eligibility for certain income-based deductions
This is why Roth conversions in the years before RMDs begin (age 60–72 for many people) are valuable — converting pre-tax money reduces future RMD amounts and the associated tax burden.
The QCD: A Tax-Efficient RMD Strategy for Charitable Givers
A Qualified Charitable Distribution (QCD) allows IRA owners age 70½+ to donate up to $105,000/year (2024, indexed for inflation) directly from their IRA to a qualified charity.
Key benefit: The QCD counts toward your RMD but is excluded from taxable income. Regular donors to charity should strongly consider QCDs:
- Normal RMD of $30,000 → all $30,000 taxable income
- QCD of $20,000 (to charity) + $10,000 cash RMD → only $10,000 taxable income
You don't get a charitable deduction (you already received the income exclusion), but the tax benefit of keeping the income out of your AGI is often more valuable — particularly for people who take the standard deduction.
Inherited IRA RMDs
When you inherit an IRA, different rules apply depending on your relationship to the deceased and when they died.
Non-spouse beneficiaries (post-2019 deaths): The SECURE Act eliminated the "stretch IRA" strategy. Most non-spouse beneficiaries must withdraw the entire inherited IRA within 10 years. Specific annual RMD rules within that 10-year period depend on whether the original owner had already begun RMDs.
Spousal beneficiaries: More options available, including treating the inherited IRA as your own.
Inherited IRA rules are complex enough to warrant consulting a tax professional.
Working Past 73: The Still-Working Exception
If you're still employed and contributing to your current employer's 401(k), you may be able to delay RMDs from that specific 401(k) until you retire (if the plan allows). This exception does NOT apply to IRAs or to 401(k)s at former employers.
Roth Conversion as RMD Prevention
One of the strongest arguments for Roth conversions in your 60s is reducing future RMDs. Each dollar converted from Traditional to Roth reduces the balance subject to RMDs, lowering future mandatory taxable withdrawals.
A well-executed Roth conversion strategy in the 60–72 age window can dramatically reduce lifetime taxes and leave more to heirs (who may benefit from tax-free Roth inheritance vs. fully taxable traditional IRA).
RMDs are a solvable problem with advance planning. The investors who end up with large, unwanted RMDs generating significant tax bills often didn't do proactive Roth conversions during their lower-income years. The solution starts decades before the first RMD is due.