Required minimum distributions are withdrawals the IRS forces you to take from certain retirement accounts once you hit a specific age, so that the government eventually collects tax on money that grew tax-deferred for decades.
When RMDs start and what happens if you miss one
RMDs must begin at age 73 for individuals born between 1951 and 1959; for those born in 1960 or later, the age rises to 75. Your first RMD is due by April 1 of the year after you reach the required age, and every RMD after that is due by December 31 of that year. Miss the required amount and the penalty is steep: 25% of the shortfall.
Which accounts are affected
RMDs apply to Traditional IRAs, SEP and SIMPLE IRAs, 401(k), 403(b), and 457(b) plans, and profit-sharing plans. They don’t apply to Roth IRAs during the original owner’s lifetime, HSAs, or taxable investment accounts.
How the calculation works
Take your account balance as of December 31 of the prior year and divide it by the life expectancy factor from the IRS Uniform Lifetime Table. If your balance is $500,000 and your life expectancy factor is 25.6, your RMD is $500,000 divided by 25.6, or $19,531. Each account’s RMD is calculated separately, but if you hold multiple IRAs of the same type, you can withdraw the combined total from just one of them.
The tax bite, and how to soften it
RMDs count as taxable income. A large one can push you into a higher bracket, raise Medicare premiums through IRMAA, or increase the taxable portion of your Social Security benefits, and RMD funds can’t be rolled into another tax-advantaged account.
A few strategies reduce the impact:
- Take voluntary withdrawals before RMDs are required, spreading taxable income across more years instead of one large bracket-jumping year.
- Convert part of a Traditional IRA or 401(k) to a Roth IRA before RMDs begin. You pay tax on the conversion now, but Roth accounts aren’t subject to RMDs and grow tax-free afterward.
- If you’re 70½ or older, direct up to $100,000 a year from an IRA straight to charity as a qualified charitable distribution. It counts toward your RMD without counting as taxable income.
- Time withdrawals for lower-income years, such as early retirement before Social Security starts.
- Hold tax-efficient investments, like municipal bonds, in taxable accounts to keep overall tax liability down.
- If you have multiple 403(b) accounts, calculate each account’s RMD separately but withdraw the total from just one to simplify the process.
RMDs are one piece of a retirement income plan, not the whole plan. Projecting your future RMD amounts and their tax impact ahead of time, and periodically reviewing which accounts you’re drawing from, keeps the mandatory withdrawals from working against the rest of your strategy.
Educational only, not tax, legal, or investment advice. Check primary sources and speak with a qualified professional before making financial decisions.
