For decades, you've enjoyed tax-deferred growth in your traditional 401(k) and IRA accounts. The government let you postpone taxes on contributions and earnings, watching your balance grow without the annual tax drag.
But Uncle Sam doesn't forget. At age 73, the bill comes due in the form of Required Minimum Distributions—mandatory withdrawals from your tax-deferred retirement accounts that generate taxable income whether you need it or not.
Fail to take your RMD correctly, and you face one of the harshest tax penalties in the code: 25% of the amount you should have withdrawn (reduced to 10% if corrected within two years). On a $10,000 RMD, that's a $2,500 penalty—plus you still owe income tax on the withdrawal.
What Are Required Minimum Distributions?
RMDs are the minimum amount you must withdraw annually from tax-deferred retirement accounts once you reach a certain age. The purpose is simple: the government wants to collect the taxes you've been deferring for decades.
Which Accounts Have RMDs?
Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, and other defined contribution plans all require RMDs.
Roth IRAs do not have RMDs during your lifetime (though inherited Roth IRAs do have RMDs for beneficiaries).
Roth 401(k)s have RMDs while you're alive, though you can roll them to a Roth IRA to avoid this requirement.
When Do RMDs Start?
Under current law (SECURE Act 2.0), you must begin taking RMDs by April 1 of the year after you turn 73. For those born in 1960 or later, this age will increase to 75.
After your first RMD (which can be delayed until April 1), all subsequent RMDs must be taken by December 31 each year.
The First-Year Trap
If you delay your first RMD until April 1 of the year after turning 73, you'll have to take two RMDs that year—one for the previous year (by April 1) and one for the current year (by December 31). This can create a significant tax spike. Consider taking your first RMD in the year you turn 73 to spread the tax impact.
Calculating Your RMD
The RMD calculation uses your account balance and life expectancy from IRS tables.
The Basic Formula
RMD = Prior year-end account balance ÷ Life expectancy factor
Example: You're 73 with a $500,000 IRA balance on December 31 of the prior year. The life expectancy factor from the IRS Uniform Lifetime Table is 26.5.
Your RMD: $500,000 ÷ 26.5 = $18,868
You must withdraw at least $18,868 during the year. You can withdraw more, but that doesn't reduce future RMDs—each year is calculated independently.
Multiple Accounts
You calculate RMDs separately for each account. For IRAs, you can aggregate the total RMD and withdraw it from one or multiple IRAs as you choose. For 401(k)s and other employer plans, you must take the RMD from each account separately.
The Tax Impact of RMDs
RMDs are taxed as ordinary income, potentially pushing you into higher tax brackets and triggering other consequences:
Higher Income Tax
Large RMDs can push you into higher marginal tax brackets. If you're near bracket thresholds, strategic planning becomes crucial.
Social Security Taxation
RMDs increase your combined income, potentially making more of your Social Security benefits taxable (up to 85%).
Medicare IRMAA
Higher income from RMDs can trigger Income-Related Monthly Adjustment Amounts, increasing your Medicare Part B and D premiums. These surcharges are based on income from two years prior and can add thousands annually to healthcare costs.
Net Investment Income Tax
For high earners, RMDs can push you over the $200,000/$250,000 thresholds that trigger the 3.8% Net Investment Income Tax on investment earnings.
"The key to RMD management isn't avoiding them—that's impossible. It's minimizing their tax impact through strategic planning."
Strategies to Minimize RMD Impact
Roth Conversions Before Age 73
Convert traditional IRA money to Roth in years before RMDs begin, particularly when you're in lower tax brackets (early retirement, between jobs, etc.). This reduces your traditional IRA balance, lowering future RMDs. You pay taxes on the conversion, but at presumably lower rates than you'd face on larger RMDs later.
Qualified Charitable Distributions (QCDs)
Once you turn 70½, you can donate up to $105,000 annually (2026 limit, indexed for inflation) directly from your IRA to qualified charities. QCDs count toward your RMD but aren't included in taxable income.
This strategy benefits those who don't itemize deductions (and therefore can't deduct charitable contributions) and want to support charities while reducing taxable income.
Still-Working Exception
If you're still working at age 73 and participating in your current employer's 401(k), you can delay RMDs from that 401(k) (but not IRAs) until you retire. This only applies if you own less than 5% of the company.
Strategy: Consider rolling old 401(k)s and IRAs into your current employer's 401(k) plan if allowed, deferring RMDs on the entire balance while you continue working.
Withdraw More in Low-Income Years
Before RMDs begin, consider withdrawing from traditional IRAs in years when your income is unusually low. This reduces the balance subject to future RMDs without the penalty of high marginal rates.
Worth Noting
RMD planning should begin in your 60s, not at age 73. Strategic withdrawals and Roth conversions during the decade before RMDs start can significantly reduce your required distributions and lifetime tax burden.
Common RMD Mistakes
Miscalculating the amount. Use the correct prior year-end balance and appropriate life expectancy table. Mistakes result in under-withdrawals and penalties.
Missing the deadline. December 31 is a hard deadline. "I forgot" isn't an excuse the IRS accepts. Set calendar reminders or automate distributions.
Forgetting inherited IRAs. Inherited IRAs have different RMD rules, often starting immediately regardless of your age. Track these separately.
Ignoring old 401(k)s. That 401(k) from a job you left years ago still requires RMDs. You're responsible for tracking all accounts.
Assuming a single withdrawal works for multiple accounts. While you can aggregate IRA RMDs, 401(k) RMDs must be taken from each plan separately.
What If You Miss an RMD?
If you discover you missed an RMD or withdrew too little:
Withdraw the missed amount as soon as possible. File Form 5329 with your tax return showing the shortfall. Request a penalty waiver, explaining the error and corrective steps. The IRS often waives penalties for reasonable cause if you act quickly to correct the mistake.
Don't ignore it hoping the IRS won't notice. They receive reports of your account balances and track RMD compliance.
Planning for the Future
RMDs will likely be a significant part of your retirement income picture. Planning for them isn't just about compliance—it's about optimizing your overall tax situation.
Work with a financial advisor or tax professional to model how RMDs will affect your taxes, develop strategies to minimize their impact, and integrate RMD planning into your broader retirement strategy.
The planning you do now can save tens of thousands in taxes over your retirement.
Important Considerations
RMD rules and requirements change periodically through legislation. The information provided reflects current law but may be superseded by future changes.
Consult with a qualified tax professional or financial advisor to ensure compliance with RMD requirements and develop strategies appropriate for your situation.