Required Minimum Distributions (RMDs)

A Required Minimum Distribution (RMD) is the minimum amount the IRS requires you to withdraw each year from most tax-deferred retirement accounts once you reach a certain age. RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, 457(b)s, and other defined-contribution plans.

The purpose of RMDs is straightforward: money in tax-deferred accounts was never taxed. The government lets it grow tax-free throughout your working life, but eventually it wants to collect. RMDs ensure that happens during your lifetime rather than passing an indefinitely tax-deferred balance to heirs.

When Do RMDs Start?

Under the SECURE 2.0 Act (effective 2023), the RMD starting age is 73 for anyone who turns 72 after December 31, 2022. It increases to 75 for those who turn 74 after December 31, 2032. Your first RMD can be delayed until April 1 of the year after you turn 73 — but if you do, you must take two distributions that year (your first and your second), which may push you into a higher tax bracket.

How Is the RMD Amount Calculated?

Your annual RMD is calculated by dividing your account balance on December 31 of the prior year by a life expectancy factor from the IRS Uniform Lifetime Table (or the Joint Life and Last Survivor Table if your sole beneficiary is a spouse more than 10 years younger).

For example, if your traditional IRA balance was $500,000 on December 31 and your IRS life expectancy factor at age 75 is 24.6, your RMD for the year is $500,000 ÷ 24.6 = approximately $20,325. You recalculate this every year as your balance and factor both change.

Which Accounts Require RMDs?

RMDs apply to all traditional (pre-tax) retirement accounts: traditional IRAs, rollover IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored plans including 401(k), 403(b), and 457(b). Roth IRAs do not require RMDs during the original owner's lifetime — one of their key tax advantages. Roth 401(k)s previously required RMDs, but SECURE 2.0 eliminated that requirement starting in 2024.

What Happens If You Miss an RMD?

Failing to take your full RMD triggers a significant penalty. Prior to SECURE 2.0, the excise tax was 50% of the shortfall. SECURE 2.0 reduced this to 25%, and further to 10% if you correct the mistake within a two-year correction window. The IRS also has a process to request a waiver for reasonable errors. Either way, it is an expensive mistake to avoid.

Strategies for Managing RMDs

RMDs add taxable income each year, which can raise your tax bracket, increase Medicare premiums (IRMAA surcharges), and affect the taxability of Social Security benefits. Several strategies can help minimize the impact:

• Roth conversions before RMDs begin — Converting pre-tax balances to Roth in your 60s reduces future RMD amounts.
• Qualified Charitable Distributions (QCDs) — If you're 70½ or older, you can donate up to $105,000 per year directly from your IRA to a qualified charity. The amount counts toward your RMD but is excluded from taxable income.
• Reinvesting RMDs — If you don't need the income, you can reinvest your after-tax RMD into a taxable brokerage account to keep building wealth.
• Aggregating IRAs — If you have multiple IRAs, you can calculate RMDs separately for each but take the total from any one or combination of IRA accounts.

Planning for RMDs is an important part of long-term retirement income strategy. Starting to model their impact years before they begin — especially through a tool that accounts for taxes, Social Security, and spending together — helps you make smarter decisions well in advance.