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Understanding Required Minimum Distributions
Required Minimum Distributions are the amounts the IRS requires you to withdraw from tax-deferred retirement accounts each year starting at a certain age. RMDs ensure that retirement savings are eventually taxed as income rather than passed on indefinitely tax-deferred.
When Do RMDs Begin?
SECURE 2.0 Act Changes: The required beginning age for RMDs has been updated:
- Born 1951-1959: RMDs begin at age 73
- Born 1960 or later: RMDs begin at age 75
- Inherited IRAs: Most non-spouse beneficiaries must empty the account within 10 years under the SECURE Act
How RMDs Are Calculated
RMD = Account Balance (Dec 31) / Life Expectancy Factor
The life expectancy factor comes from IRS Uniform Lifetime Table III
IRS Uniform Lifetime Table (Selected Ages)
| Age | Distribution Period | RMD % of Balance | Age | Distribution Period | RMD % of Balance |
|---|---|---|---|---|---|
| 72 | 27.4 | 3.65% | 82 | 18.5 | 5.41% |
| 73 | 26.5 | 3.77% | 85 | 16.0 | 6.25% |
| 74 | 25.5 | 3.92% | 88 | 13.7 | 7.30% |
| 75 | 24.6 | 4.07% | 90 | 12.2 | 8.20% |
| 76 | 23.7 | 4.22% | 93 | 10.3 | 9.71% |
| 78 | 22.0 | 4.55% | 95 | 8.9 | 11.24% |
| 80 | 20.2 | 4.95% | 100 | 6.4 | 15.63% |
Accounts Subject to RMDs
Accounts WITH RMDs
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- 457(b) plans
- Inherited IRAs (including Roth)
Accounts WITHOUT RMDs
- Roth IRAs (original owner)
- Roth 401(k) - starting 2024 per SECURE 2.0
- Health Savings Accounts (HSA)
- Taxable brokerage accounts
- Life insurance policies
Penalties for Missed RMDs
Under the SECURE 2.0 Act, the penalty for failing to take an RMD has been reduced from 50% to 25% of the shortfall amount. If you correct the error in a timely manner by taking the missed distribution and filing a corrected tax return, the penalty is further reduced to 10%. Despite the lower penalty, it is still a significant cost that can easily be avoided by taking your distributions on time.
Strategies for Managing RMDs
| Strategy | How It Works | Benefit |
|---|---|---|
| Roth Conversions | Convert Traditional IRA to Roth before RMD age | Reduces future RMDs and passes tax-free to heirs |
| QCD (Qualified Charitable Distribution) | Donate up to $105,000/year directly from IRA to charity | Satisfies RMD without increasing taxable income |
| Strategic Timing | Take RMDs in lower-income years | Potentially stay in a lower tax bracket |
| Aggregate IRAs | Calculate total RMD across all IRAs but withdraw from one | Simplifies withdrawals and optimizes portfolio |
| Still Working Exception | Delay 401(k) RMDs if still employed (not 5%+ owner) | Continues tax-deferred growth while working |
Frequently Asked Questions
Yes, you can always withdraw more than your RMD. However, the excess cannot be applied to next year's RMD. Any amount above the RMD is still taxed as ordinary income. Some retirees choose to take larger distributions in lower-income years to reduce the balance and lower future RMDs. This is especially useful if you expect to be in a higher tax bracket later due to Social Security, pension income, or other factors.
Original Roth IRA owners are never required to take RMDs during their lifetime. This is one of the biggest advantages of Roth accounts. Starting in 2024, Roth 401(k) accounts are also exempt from RMDs thanks to the SECURE 2.0 Act. However, inherited Roth IRAs do have distribution requirements. Most non-spouse beneficiaries of inherited Roth IRAs must withdraw all funds within 10 years of the original owner's death, though the withdrawals are tax-free.
A QCD allows individuals age 70.5 or older to donate up to $105,000 per year directly from their IRA to a qualified charity. The distribution satisfies your RMD requirement but is excluded from taxable income. This is better than taking the RMD as income and then making a charitable donation because the QCD avoids increasing your adjusted gross income, which can affect Social Security taxation, Medicare premiums, and other income-based thresholds. The donation must go directly from the IRA custodian to the charity.
Under the SECURE Act, most non-spouse beneficiaries who inherit an IRA must withdraw all funds within 10 years of the original owner's death. There is no annual RMD requirement, but the entire account must be empty by the end of the 10th year. Eligible designated beneficiaries (surviving spouse, minor children, disabled individuals, and those not more than 10 years younger than the deceased) can still use the stretch IRA method based on their own life expectancy. Spouses have the additional option of rolling the inherited IRA into their own IRA.
RMDs must be taken by December 31 of each year. The one exception is your very first RMD, which can be delayed until April 1 of the following year. However, if you delay your first RMD, you will need to take two distributions in that second year (the delayed first-year RMD plus the current-year RMD), which could push you into a higher tax bracket. Most financial advisors recommend taking your first RMD by December 31 of the first required year to avoid this double-distribution situation.
