Required Minimum Distributions (RMDs): What Retirees Should Know

If you have money in a traditional IRA, 401(k), 403(b), or 457(b), federal tax law requires you to begin taking withdrawals once you reach a certain age. These are called Required Minimum Distributions, or RMDs. This guide explains how RMDs work at a conceptual level. It is educational only and is not tax advice.

When RMDs Begin

For most people, RMDs begin at age 73 (as of 2023 under the SECURE 2.0 Act). If you turned 72 before January 1, 2023, your RMD age was 72. The rules have changed over time, so your required beginning date depends on your birth year. Your first RMD is due by April 1 of the year after you turn 73; all subsequent RMDs are due by December 31 each year.

How RMD Amounts Are Calculated

The IRS provides life expectancy tables that determine your RMD. The calculation is: account balance as of December 31 of the prior year, divided by your life expectancy factor from the IRS table. The result is the minimum amount you must withdraw. You can always take out more than the minimum.

Which Accounts Require RMDs

• Traditional IRAs, SEP IRAs, SIMPLE IRAs: RMDs required
• 401(k), 403(b), 457(b), and other employer plans: RMDs required (with a "still-working" exception if you are still employed and do not own 5%+ of the company)
• Roth IRAs: No RMDs during the original owner's lifetime (but Roth 401(k) accounts did require RMDs before SECURE 2.0; that rule was eliminated starting in 2024)
• Inherited retirement accounts: Different RMD rules apply depending on your relationship to the deceased and when they died.

Penalties for Missing an RMD

If you fail to take your full RMD by the deadline, the IRS may assess an excise tax on the amount you should have withdrawn but did not. Historically, this penalty was 50%; under SECURE 2.0, it was reduced to 25% (and potentially 10% if corrected quickly). The penalty can be waived if you can show reasonable cause.

RMDs and Tax Planning

RMDs are taxed as ordinary income in the year you take them. Because they are mandatory, they can push you into a higher tax bracket or trigger additional taxes on Social Security benefits or Medicare premiums (IRMAA). Some retirees use strategies like Qualified Charitable Distributions (QCDs) to satisfy RMDs while reducing taxable income, but these strategies require careful planning and professional guidance.

Planning for RMDs

Understanding when RMDs begin and how much they will be is an important part of retirement income and tax planning. A tax professional or financial advisor can help you estimate future RMDs and structure your withdrawal strategy to manage taxes effectively.