Required Minimum Distributions (RMDs) Explained

The government gave you a tax break when you put money into traditional retirement accounts, allowing contributions to reduce your taxable income and investments to grow without annual taxes. Required minimum distributions, or RMDs, are how it eventually collects taxes on that money. Understanding RMDs helps you avoid penalties and plan your retirement income and taxes more effectively.

What RMDs are

An RMD is the minimum amount you must withdraw each year from most tax-deferred retirement accounts once you reach a certain age. Withdrawals are generally taxed as ordinary income in the year you take them.

RMDs ensure that money in tax-deferred accounts doesn’t grow untaxed indefinitely. You can always withdraw more than the minimum, but you must withdraw at least the required amount each year once RMDs begin.

When RMDs start

The age at which RMDs begin has changed in recent years. Under the SECURE 2.0 Act, RMDs generally begin at age 73 for people born from 1951 through 1959, and at age 75 for people born in 1960 or later.

Your first RMD can generally be delayed until April 1 of the year after you reach your RMD age. However, if you delay your first RMD, you’ll need to take two RMDs in that year: the delayed first one and the second one by December 31. Taking two distributions in one year could push you into a higher tax bracket, so many people take their first RMD in the year they reach RMD age. After the first year, RMDs are due by December 31 each year.

Rules have changed several times, so check irs.gov for the rules that apply to you.

Which accounts are affected

RMDs apply to traditional IRAs, SEP IRAs and SIMPLE IRAs, as well as 401(k), 403(b), 457(b) and similar workplace retirement plans.

Roth IRAs don’t require withdrawals during the original owner’s lifetime, which is one of their key advantages. Starting in 2024, Roth 401(k)s and other designated Roth accounts in workplace plans no longer require RMDs during the owner’s lifetime either.

If you’re still working past your RMD age, you may be able to delay RMDs from your current employer’s plan until you retire, depending on the plan’s rules and as long as you don’t own 5% or more of the company. This exception doesn’t apply to IRAs or plans from previous employers.

Inherited retirement accounts have their own RMD rules, which differ depending on the beneficiary’s relationship to the original owner and when the owner died. Many non-spouse beneficiaries must empty inherited accounts within 10 years.

How the amount is calculated

Generally, your RMD for each account is calculated by dividing your account balance at the end of the previous year by a life expectancy factor from IRS tables. Most people use the Uniform Lifetime Table. If your spouse is your sole beneficiary and is more than 10 years younger than you, a different table may apply.

As you age, the life expectancy factor decreases, so the percentage of your account you must withdraw increases each year.

Your account custodian will often calculate your RMD for you, but you’re ultimately responsible for making sure the correct amount is withdrawn.

If you have multiple traditional IRAs, you calculate the RMD for each, but you can withdraw the total from one or more of them. For 401(k)s and similar plans, RMDs generally must be taken separately from each plan.

Don’t miss your RMD

Missing an RMD, or withdrawing less than required, can trigger an IRS excise tax on the amount you should have withdrawn but didn’t. Under SECURE 2.0, the penalty was reduced and may be reduced further if you correct the mistake in a timely manner. Even so, it’s best to avoid it entirely.

Set a calendar reminder and consider setting up automatic distributions with your account custodian, which can spread withdrawals throughout the year or make them on a schedule.

Planning around RMDs

RMDs can affect your taxes significantly. Large RMDs can push you into a higher tax bracket, increase how much of your Social Security benefits are taxable and raise your Medicare premiums through income-related adjustments.

Some retirees reduce future RMDs by withdrawing from tax-deferred accounts or doing Roth conversions in lower-income years before RMDs begin. Converting traditional IRA money to a Roth IRA means paying taxes now, but the converted money won’t be subject to RMDs during your lifetime.

A charitable giving option

People age 70½ or older may be able to make qualified charitable distributions, or QCDs, directly from an IRA to eligible charities. QCDs can count toward your RMD, and the amount donated isn’t included in your taxable income, up to an annual limit. For charitably inclined retirees, QCDs can be a tax-efficient way to give.

Get help

RMD rules are detailed and have changed in recent years. A tax professional or financial planner can help you calculate RMDs, plan withdrawals and develop strategies to manage taxes in retirement.