Required minimum distributions, or RMDs, are mandatory yearly withdrawals the government requires from most tax-deferred retirement accounts. They exist because you deferred tax on that money for decades, and the IRS eventually wants its share. Missing one can be costly, so knowing the timing and math is essential as you approach your 70s.
When RMDs begin
Under current law, RMDs from traditional IRAs and 401(k)s start at age 73 for people born between 1951 and 1959, and at age 75 for those born in 1960 or later. Your first RMD can be delayed until April 1 of the year after you turn 73, but every subsequent one is due by December 31. Delaying that first distribution means taking two in the same calendar year, which can spike your taxable income. Roth IRAs have no required distributions during the owner's lifetime.
How the amount is calculated
Each year's RMD equals your prior year-end account balance divided by a life-expectancy factor from the IRS Uniform Lifetime Table. At age 73 the factor is 26.5, which works out to roughly 3.8 percent of the balance, and the percentage rises each year as the factor shrinks. You calculate the amount for each account, though you can total your IRA RMDs and withdraw the sum from any one IRA. Employer plans like 401(k)s generally must each satisfy their own RMD separately.
Taxes and the penalty for missing one
RMDs from traditional accounts are taxed as ordinary income in the year you take them, which can affect your tax bracket and Medicare premiums. Failing to take the full required amount triggers a penalty, which the SECURE 2.0 law reduced from 50 percent to 25 percent of the shortfall. The penalty drops further to 10 percent if you correct the mistake promptly within a short window. Because the stakes are high, many retirees automate their distributions.
Strategies to manage RMDs
Converting traditional balances to Roth in lower-income years before RMDs begin can shrink future required withdrawals. A qualified charitable distribution lets those 70 and a half or older send up to a set amount directly from an IRA to charity, satisfying the RMD without adding to taxable income. Delaying Social Security while drawing down traditional accounts early can also smooth the tax hit. Planning ahead avoids being forced into a high bracket in your 70s.
A 73-year-old with 500,000 dollars in a traditional IRA at the prior year-end divides by the factor of 26.5, producing a required distribution of about 18,868 dollars. That amount is added to their taxable income for the year.
Key takeaways
- RMDs start at age 73 for most people today, and 75 for those born in 1960 or later.
- The amount is the prior year-end balance divided by an IRS life-expectancy factor.
- Distributions are taxed as ordinary income, and Roth IRAs have no lifetime RMDs.
- Missing an RMD costs a 25 percent penalty, reduced to 10 percent if corrected promptly.
Common mistakes
- Delaying the first RMD to April 1 and then owing two taxable distributions in one year.
- Assuming you can aggregate 401(k) RMDs the way you can with IRAs.
- Forgetting that RMDs can push you into a higher bracket and raise Medicare premiums.
FAQ
Do Roth accounts require distributions?
Roth IRAs never require them during the owner's lifetime, and starting in 2024 Roth 401(k)s no longer require them either.
Can I reinvest an RMD?
You must take the distribution, but nothing stops you from investing the after-tax proceeds in a regular taxable brokerage account.