A required minimum distribution (RMD) is the smallest amount you must withdraw each year from certain retirement accounts once you reach age 73. The IRS requires these withdrawals because the money in traditional retirement accounts has never been taxed, and RMDs ensure it eventually will be. You can always take out more than the minimum, but taking less triggers a steep penalty.
Which Accounts Require RMDs
RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer-sponsored retirement plans like 401(k)s, 403(b)s, and 457(b)s. The common thread is that contributions to these accounts were made with pre-tax dollars or received a tax deduction, so the IRS wants its share when you start drawing down the balance.
Roth IRAs are the notable exception. Because you fund a Roth IRA with after-tax dollars, the original account owner never has to take RMDs during their lifetime. Roth 401(k) accounts were previously subject to RMDs, but starting in 2024, Roth 401(k) balances are also exempt. If you have both traditional and Roth accounts, only the traditional side will generate an annual RMD obligation.
When RMDs Start
You must begin taking RMDs for the year you turn 73. Your very first distribution gets a small grace period: you can delay it until April 1 of the year after you turn 73. Every RMD after that is due by December 31 of each year.
That grace period comes with a catch. If you push your first RMD into the following year, you’ll need to take two distributions in the same calendar year: the delayed first one by April 1 and the regular second one by December 31. Both count as taxable income for that year, which could push you into a higher tax bracket. For many people, taking the first distribution in the year they actually turn 73 is the better move.
If you’re still working and participating in an employer plan like a 401(k), some plans let you delay RMDs from that specific account until you actually retire, as long as you don’t own 5% or more of the company. This “still working” exception only covers the plan at your current employer. It does not apply to IRAs or old 401(k)s from previous jobs.
How Your RMD Is Calculated
The formula is straightforward: divide your account balance on December 31 of the prior year by a life expectancy factor from an IRS table. The result is your RMD for the current year.
For example, if your traditional IRA held $500,000 on December 31 and the IRS table assigns you a life expectancy factor of 26.5, your RMD would be $500,000 divided by 26.5, which comes to roughly $18,868. As you age, the life expectancy factor shrinks, which means your RMD percentage grows larger each year even if your balance stays the same.
The IRS publishes three different life expectancy tables, and which one you use depends on your situation:
- Uniform Lifetime Table (Table III): The default for most account owners. You use this unless your spouse is both your sole beneficiary and more than 10 years younger than you.
- Joint and Last Survivor Table (Table II): Used when your spouse is the sole beneficiary and more than 10 years younger. This table produces a smaller RMD because it accounts for the longer combined life expectancy.
- Single Life Expectancy Table (Table I): Used by beneficiaries who inherit a retirement account.
If you have multiple traditional IRAs, you calculate the RMD for each one separately but can withdraw the total from any one or combination of your IRAs. Employer plans work differently: you must take each plan’s RMD from that specific plan.
The Penalty for Missing an RMD
The penalty for falling short is one of the harshest in the tax code. If you don’t withdraw enough, the IRS charges an excise tax of 25% on the amount you should have taken but didn’t. That penalty drops to 10% if you correct the shortfall within two years. Miss a $20,000 RMD entirely and you’d owe $5,000 in penalties at the 25% rate, on top of the income tax you’ll still owe when you do withdraw the money.
If you realize you’ve missed or shorted an RMD, withdraw the correct amount as soon as possible. The IRS offers a Voluntary Correction Program where you can request a waiver of the excise tax by filing Form 14568 with an attached Schedule 8. Demonstrating that the mistake was reasonable and that you’ve since taken the distribution significantly improves your chances of getting the penalty waived.
How RMDs Are Taxed
RMDs from traditional accounts are taxed as ordinary income in the year you receive them. The withdrawal gets added to your other income (Social Security benefits, pensions, investment earnings) and taxed at your marginal rate. A large RMD can affect more than just your income tax bracket. It can also increase the taxable portion of your Social Security benefits and raise your Medicare premiums if it pushes your modified adjusted gross income above certain thresholds.
One strategy that can help: if you’re 70½ or older, you can direct up to $100,000 per year from your IRA to a qualified charity through a qualified charitable distribution (QCD). The amount you send to charity counts toward your RMD but isn’t included in your taxable income. This effectively turns a forced taxable withdrawal into a tax-free charitable gift.
Planning Around RMDs
Because RMDs are based on your prior year-end balance, a strong year in the markets means a bigger required withdrawal the following year. Some retirees manage this by taking distributions throughout the year rather than in a single lump sum, which can also help with budgeting and reduce the risk of forgetting the deadline.
If you want to reduce future RMDs, one common approach is converting traditional IRA money to a Roth IRA before age 73. You’ll pay income tax on the converted amount in the year of the conversion, but the money then grows tax-free in the Roth and won’t be subject to RMDs. Spreading conversions over several years can keep each year’s tax hit manageable.
Most brokerage firms and plan administrators will calculate your RMD for you and can set up automatic withdrawals so you never miss the deadline. If you manage your own accounts, the IRS provides worksheets in Publication 590-B to walk through the math.