Key takeaways
– An RMD is the minimum amount you must withdraw annually from most employer-sponsored retirement plans and traditional IRAs once you reach the IRS-specified starting age.
– For most people the RMD starting age is 73; the first RMD can be delayed until April 1 of the year after you turn 73, but subsequent RMDs must be taken by December 31 each year.
– RMDs are generally taxable as ordinary income. Failing to take a required distribution can trigger a substantial IRS excise tax unless corrected promptly.
– Roth IRAs are exempt from RMDs during the original owner’s lifetime; Roth 401(k) accounts are subject to RMDs unless rolled to a Roth IRA.
– Rules for inherited IRAs are different and were substantially changed by the SECURE Act (2019).
What is an RMD?
A required minimum distribution (RMD) is the smallest amount the IRS requires you to withdraw from certain retirement accounts each year once you reach the RMD age. Accounts that commonly have RMD rules include:
– Traditional IRAs
– SEP IRAs and SIMPLE IRAs
– Most employer-sponsored plans (401(k), 403(b), etc.)
Roth IRAs owned by the account owner are not subject to RMDs during the account owner’s lifetime.
Why the IRS requires RMDs
RMDs ensure that tax-deferred retirement savings are eventually taxed. Contributions and earnings in many retirement accounts were made with pre‑tax dollars or built up tax-deferred; RMDs bring those funds into taxable income over time.
When RMDs must start
– Current general rule: start by age 73.
– First year: you may delay your first RMD until April 1 of the year after you reach 73. If you delay the first year, you will still need to take the second-year RMD by December 31, which can increase taxable income in that second year.
– Later years: RMDs for subsequent years must be taken by December 31 of each year.
How RMDs are calculated (step-by-step)
1. Determine the relevant account balance: Use the fair market value (FMV) of each retirement account as of December 31 of the prior year.
2. Select the correct IRS life-expectancy table (Uniform Lifetime Table is most common). Use a different table if your sole beneficiary is a spouse who is more than 10 years younger (Joint Life and Last Survivor Table) or if you qualify for a beneficiary table.
3. Find the distribution period (a divisor) from the table for your age at the distribution year.
4. Divide the prior-year year-end account balance by the distribution period.
Formula:
RMD = Prior-year Dec. 31 account balance / Distribution period (from IRS table)
Example
– Prior-year Dec. 31 balance: $205,000
– Account owner’s age in current year: 74 → distribution period (example) = 25.5
– RMD = $205,000 ÷ 25.5 = $8,039.22
(This is the minimum you must withdraw during the year.)
Aggregation and multiple accounts
– IRAs: If you have multiple traditional IRAs, calculate the RMD for each account, then you may withdraw the total RMD amount from one or more of the IRAs (you don’t have to take each account’s RMD from that specific account).
– Employer plans: RMDs for employer-sponsored plans (401(k), etc.) generally must be taken separately from each plan; they usually cannot be aggregated across different employer plans. Check plan rules or roll funds to an IRA if needed.
Taxation of RMDs
– RMD withdrawals from pre-tax accounts are taxable as ordinary income in the year withdrawn.
– If you made nondeductible contributions to an IRA, a portion of the withdrawal may be nontaxable (pro rata basis) — use Form 8606 to report basis and calculate taxable portion.
– Employers may offer automatic withholding for taxes; review withholding to avoid underpayment.
Penalties for missing or under-withdrawing an RMD
– Failing to take the full RMD may result in an excise tax. Recent law changes reduced the standard excise tax from 50% (historical) to 25% of the amount not withdrawn; under certain corrective circumstances the excise tax can be reduced to 10% if the shortfall is corrected within a specified period. Contact the IRS or a tax advisor for the current relief rules and procedures.
– You should correct mistakes promptly and file Form 5329 if required; the IRS may waive the excise tax if the shortfall was due to reasonable error and you took steps to remedy it.
Special considerations and common questions
– Roth accounts: Roth IRAs are not subject to RMDs while the owner is alive. Roth 401(k)s are subject to RMDs unless rolled to a Roth IRA.
– Working past RMD age: Some employer plans permit participants who are still employed to delay RMDs from that employer’s plan until retirement (check plan rules); IRAs do not offer this deferral.
– Inherited IRAs: Rules for beneficiaries changed under the SECURE Act (2019). Many beneficiaries now must distribute the entire inherited account within 10 years of the original owner’s death (10-year rule), though some “eligible designated beneficiaries” (e.g., surviving spouse, disabled person, minor child of the decedent until majority, chronically ill individuals) have different options including life-expectancy-based distributions. The timeframe and method depend on whether the account owner died before or after 2019 and on beneficiary classification.
– Withdrawing more than the RMD is allowed but will increase taxable income that year.
Practical steps checklist (what to do, year by year)
1. Inventory your retirement accounts and identify which are subject to RMDs.
2. Note your RMD start year and mark calendar deadlines (first RMD by April 1 after turning 73; subsequent RMDs by December 31).
3. Ask each custodian for your prior-year Dec. 31 account balance and for their RMD calculation. Custodians usually offer to calculate and pay RMDs for you.
4. Decide timing and source(s) of withdrawal — monthly, quarterly, or lump-sum — and whether to aggregate IRAs for distribution.
5. Select federal and state tax withholding if needed; estimate the tax impact of RMDs on your overall tax bracket.
6. Consider tax planning:
• Roth conversions before RMD age to reduce future RMDs (Roth IRAs don’t have lifetime RMDs).
• Charitable RMDs (Qualified Charitable Distributions, QCDs) if over age 70½/older thresholds and eligible — QCDs can satisfy all or part of an RMD and are excluded from taxable income (check current age thresholds and rules).
• Coordinate distributions to manage tax brackets (e.g., spread conversions over years).
7. For inherited accounts: identify beneficiary category, understand deadlines (10‑year rule, life-expectancy options), and consult estate/tax counsel.
8. Keep good records (custodian statements, Form 1099‑R) and report distributions correctly on tax returns.
If you miss an RMD
– Contact your account custodian and withdraw the shortfall immediately, if possible.
– Consult a tax advisor about filing Form 5329 and requesting IRS relief if the miss was due to reasonable error. The IRS has procedures for requesting abatement of the excise tax if corrected and justified.
Where to find authoritative guidance
– IRS — Retirement Topics — Required Minimum Distributions (RMDs):
– IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs):
– For inherited IRA rules and the SECURE Act: IRS guidance and your tax or estate planning advisor.
Sources
– Investopedia, “Required minimum distribution (RMD)”
– IRS publications and web pages cited above.
Final practical tips
– Let your custodian calculate and/or distribute the RMD if you’re unsure; custodians commonly offer this service.
– Plan distributions across multiple years to manage tax brackets and reduce surprises.
– If you expect to be a beneficiary of an IRA, review and update estate documents and beneficiary designations, and get professional advice on how the SECURE Act rules may affect transfer strategies.
Editor’s note: The following topics are reserved for upcoming updates and will be expanded with detailed examples and datasets.