Required Minimum Distributions (RMDs) Explained

Required Minimum Distributions are one of those retirement topics that seem purely technical — until they aren't. Until the year you turn 73 and suddenly discover that the IRS has strong opinions about how much of your retirement savings you must withdraw each year, whether you need the money or not. Miss the deadline and face a steep penalty. Take out too much without planning and you could push yourself into a higher tax bracket, increase the taxable portion of your Social Security benefits, and trigger surcharges on your Medicare premiums — all in one tax year.

Understanding RMDs before they begin gives you meaningful options. Ignoring them until they arrive does not. This guide covers everything a retiree or pre-retiree needs to know: what RMDs are, which accounts are affected, how to calculate them, what the penalties look like, and — most importantly — the proven strategies that can reduce their tax impact significantly over time.

What Are Required Minimum Distributions?

RMDs are the minimum annual withdrawals the IRS requires you to take from most tax-deferred retirement accounts beginning at age 73 — for those born after 1950 under the SECURE 2.0 Act. The age threshold is scheduled to rise to 75 for those born in 1960 or later, though you should verify current law as regulations can change.

The reasoning behind RMDs is straightforward: when you contributed to a traditional IRA or 401(k), you received a tax deduction. The money grew tax-deferred for decades. The IRS established RMDs to ensure that this deferred tax eventually gets collected — before you pass the funds to heirs who might defer them further. The government wants its share, and RMDs are the mechanism that forces the issue.

For most retirees, RMDs are not a choice. They are a legal obligation with meaningful financial consequences if ignored. The good news is that with proper planning — ideally starting several years before age 73 — you have real tools to reduce the damage and sometimes turn RMDs into a net advantage.

Which Accounts Require RMDs?

RMDs apply to virtually all tax-deferred retirement accounts, including:

• Traditional IRAs
• Traditional 401(k) plans
• 403(b) plans (common for educators and nonprofit employees)
• 457(b) government plans
• SEP IRAs and SIMPLE IRAs
• Profit-sharing plans
• Other defined contribution plans
• Inherited IRAs (with different rules depending on your relationship to the original owner)

Roth IRAs do NOT require RMDs during the original owner's lifetime. This is one of the primary advantages of Roth accounts in long-term retirement planning. The SECURE 2.0 Act also eliminated RMD requirements for Roth 401(k)s starting in 2024 — they now follow Roth IRA rules, meaning no RMDs during the original owner's life.

When Do RMDs Begin?

Your first RMD is due by April 1 of the year following the year you turn 73. Every subsequent RMD is due by December 31 of that year. This means if you turn 73 in 2025, your first RMD is due by April 1, 2026 — but your second RMD is also due by December 31, 2026. Taking two RMDs in one calendar year can significantly increase your taxable income for that year, so many retirees choose to take their first RMD in the year they turn 73 rather than waiting until April 1.

How RMD Amounts Are Calculated

Your RMD for each year is calculated using a straightforward formula: divide your account balance as of December 31 of the previous year by your life expectancy factor from the IRS Uniform Lifetime Table. The IRS publishes updated life expectancy tables in Publication 590-B, and your account custodian is generally required to calculate and report your RMD amount to you each year.

A few important mechanics to understand:

• Multiple IRAs: Each traditional IRA's RMD is calculated separately, but you can take the total combined IRA RMD from any one IRA or a combination of IRAs — you don't need to withdraw from each account individually.
• Multiple 401(k)s: Unlike IRAs, 401(k) RMDs must be taken separately from each plan. You cannot aggregate them.
• Inherited IRAs: These follow separate rules and generally require full distribution within 10 years for non-spouse beneficiaries under the SECURE Act.
• The factor decreases each year: As you age, your life expectancy factor decreases, which means your RMD percentage of your account balance increases each year — even if the account balance stays the same.

The Penalty for Missing an RMD

The IRS takes missed RMDs seriously. The penalty for failing to take a required RMD is 25% of the amount you should have withdrawn. If you correct the missed RMD within two years, the penalty drops to 10%. On a $20,000 missed RMD, the uncorrected penalty is $5,000 — on top of the ordinary income tax you'll still owe when you eventually withdraw.

Most major custodians — Fidelity, Vanguard, Schwab — offer automatic RMD services that calculate and distribute your RMD on a schedule you set. If you have multiple accounts across multiple custodians, this becomes especially important to track carefully.

How RMDs Affect Your Tax Situation

RMDs are taxed as ordinary income in the year you receive them. Depending on your other income sources, a large RMD can create a cascade of tax consequences that many retirees don't anticipate:

Higher Tax Bracket

If your RMD pushes your total income above a bracket threshold, the portion above that threshold is taxed at a higher marginal rate. A retiree with $40,000 in other income who receives a $30,000 RMD may find part of that RMD taxed at 22% rather than 12%.

Increased Taxable Social Security

Social Security benefits become partially taxable when your "combined income" (adjusted gross income + nontaxable interest + half of Social Security benefits) exceeds $25,000 for single filers or $32,000 for married filing jointly. RMDs count toward this calculation. Up to 85% of your Social Security benefits can become taxable if income rises high enough — a hidden cost many retirees miss entirely.

IRMAA Medicare Surcharges

Medicare Part B and Part D premiums are income-tested through the Income-Related Monthly Adjustment Amount (IRMAA). If your modified adjusted gross income exceeds certain thresholds — starting around $103,000 for individuals in 2025 — your Medicare premiums increase significantly. A large RMD in a given year can trigger IRMAA surcharges the following year, adding hundreds or thousands of dollars in premium costs.

Net Investment Income Tax

High-income retirees may also owe the 3.8% Net Investment Income Tax on investment income above certain thresholds. While RMDs themselves are not subject to this tax, the additional income can push other investment income over the threshold.

Strategies to Manage and Reduce RMDs

The most effective RMD strategies are implemented before age 73 — during the window between retirement and when RMDs begin. But even after RMDs start, several tools remain available.

1. Roth Conversions Before Age 73

Converting traditional IRA funds to Roth in the years before RMDs begin reduces the balance subject to future mandatory withdrawals. The conversion amount is taxable in the year it occurs, so the goal is to convert during lower-income years — typically after you've stopped working but before RMDs and Social Security create a higher income floor.

A retiree who converts $30,000 per year from age 65 to 73 reduces their traditional IRA by $240,000 before RMDs begin. At a 4% withdrawal rate, that's approximately $9,600 less in annual RMDs — and potentially $0 in RMDs on that converted amount forever, since Roth IRAs have no RMD requirement.

2. Qualified Charitable Distributions (QCDs)

If you are 70½ or older, you can direct up to $105,000 per year (2025 limit, indexed for inflation) from your IRA directly to a qualified charity as a Qualified Charitable Distribution. The QCD counts toward your RMD for the year but is excluded from your taxable income entirely — it never appears on your return as income.

For charitably inclined retirees, the QCD is one of the most powerful tax tools available. It satisfies your RMD obligation without adding to your taxable income, avoids triggering the Social Security taxation cascade, and bypasses the IRMAA calculation. Even retirees who don't itemize deductions benefit, since the QCD reduces income rather than generating a deduction.

3. Still Working Exception

If you are still working at age 73 and actively participating in your current employer's 401(k), RMDs from that specific plan can be delayed until you actually retire. This exception does not apply to IRAs, old 401(k)s from former employers, or plans where you own more than 5% of the business.

4. Aggregate IRA Withdrawals Strategically

Since you can take total IRA RMDs from any combination of your IRAs, you have flexibility to draw down from accounts strategically. If one IRA holds poorly performing assets you want to exit anyway, directing withdrawals from that account satisfies the RMD while allowing better-performing accounts to continue growing.

5. Consider Timing Within the Year

Taking your RMD early in the year removes that amount from the market for the remainder of the year. Taking it late in the year keeps the money invested longer. There is no universally correct answer — the right choice depends on your cash flow needs, investment outlook, and whether you want to reinvest the RMD proceeds in a taxable account. What matters most is simply not missing the December 31 deadline.

6. Reinvest RMDs in a Taxable Brokerage Account

If you don't need your RMD for living expenses, you can reinvest it in a taxable brokerage account. While you've paid ordinary income tax on the withdrawal, future growth in the taxable account is taxed at preferential long-term capital gains rates if held more than a year — potentially lower than ordinary income rates. This is not a way to avoid the RMD, but it keeps the money working for you rather than sitting in cash.

Inherited IRA RMD Rules

The rules for inherited IRAs changed significantly under the SECURE Act of 2019 and were further clarified by the IRS in subsequent guidance. For most non-spouse beneficiaries who inherited an IRA after January 1, 2020, the account must be fully distributed within 10 years of the original owner's death. Annual RMDs within that 10-year window may also be required depending on whether the original owner had already begun taking RMDs — a complex area where professional guidance is particularly valuable.

Spousal beneficiaries have more flexibility: a surviving spouse can roll the inherited IRA into their own IRA and treat it as their own, delaying RMDs until they reach age 73.

Common RMD Mistakes to Avoid

• Missing the first RMD deadline: The April 1 deadline for your first RMD only applies in your first RMD year. Every subsequent year, the deadline is December 31 — with no extension.
• Forgetting an old 401(k): If you have 401(k) accounts from previous employers, those accounts have their own RMD requirements. Consolidating old 401(k)s into a single IRA before RMDs begin simplifies tracking considerably.
• Assuming Roth 401(k)s still have RMDs: As of 2024 they don't, but older guidance stated otherwise. Verify current rules with your plan administrator.
• Taking the wrong amount: Your custodian calculates your RMD, but errors happen. Verify the calculation against IRS tables and your December 31 balance each year.
• Not withholding taxes: RMDs are taxable income. If you don't withhold federal and state taxes from your distribution, you may face an underpayment penalty at tax time. You can instruct your custodian to withhold a percentage automatically.

Frequently Asked Questions About RMDs