What Are Required Minimum Distributions (RMDs)?

A Required Minimum Distribution is the minimum amount of money that the owner of a tax-deferred retirement account must withdraw annually.

The “Why” Behind the Rule: The entire premise of accounts like a Traditional IRA or a 401(k) is tax deferral. The government allows you to contribute money and enjoy decades of investment growth without paying taxes on it year after year. This is a powerful benefit designed to encourage retirement savings. However, this tax deferral was never intended to be permanent. The RMD rules are the government’s mechanism to ensure that it eventually receives its tax revenue on those funds. By mandating withdrawals, the IRS forces the money out of its tax-sheltered status and makes it subject to ordinary income tax.

Which Accounts Are Subject to RMDs? The RMD rules apply to virtually all tax-deferred retirement accounts, including:

• Traditional IRAs

• SEP IRAs

• SIMPLE IRAs

• 401(k) plans

• 403(b) plans

• 457(b) plans

• Profit-sharing plans

The Roth IRA Exception: A Powerful Advantage One of the most significant advantages of a Roth IRA is that it is NOT subject to RMDs for the original owner. Because you funded a Roth IRA with post-tax dollars, the IRS has no claim to future tax revenue on that account. This allows your money to continue growing completely tax-free for your entire lifetime, giving you ultimate control over when and if you take withdrawals. It also makes the Roth IRA a uniquely powerful estate planning tool, as you can pass it on to your heirs without being forced to deplete it.

The Critical Starting Point: Your RMD Age and Deadlines

Recent legislation, most notably the SECURE Act of 2019 and the SECURE 2.0 Act of 2022, has changed the age at which RMDs must begin. It is crucial to know which rule applies to you based on your birth year.

• Born before July 1, 1949: Your RMDs began at age 70½.

• Born between July 1, 1949, and December 31, 1950: Your RMDs began at age 72.

• Born between January 1, 1951, and December 31, 1959: Your RMDs begin at age 73.

• Born on or after January 1, 1960: Your RMDs begin at age 75.

Understanding Your Deadlines

• Your First RMD: You have until April 1st of the year after you reach your RMD age to take your very first distribution.

• All Subsequent RMDs: For every year thereafter, your RMD must be taken by December 31st.

The First-Year Deadline Dilemma: While you have the flexibility to delay your first RMD until April 1 of the following year, doing so means you will have to take two RMDs in that same calendar year—the one for the previous year and the one for the current year. This “bunching” of two distributions into one tax year can significantly increase your taxable income, potentially pushing you into a higher tax bracket and increasing your Medicare premiums. Most financial advisors recommend taking your first RMD in the year you actually reach your RMD age to avoid this tax spike.

The RMD Calculation: A Step-by-Step Breakdown

The RMD formula itself is straightforward. The complexity lies in getting the two inputs correct.

RMD = Prior Year-End Account Balance / Life Expectancy Factor

Our RMD Calculator automates this entire process, but understanding the components is key.

Part 1: Your Account Balance

The first part of the equation is the total value of your retirement account(s) as of December 31st of the previous year. For example, to calculate your RMD for 2025, you will use the total balance of your accounts on December 31, 2024.

• Rule for IRAs: If you have multiple Traditional IRAs, you must add up the year-end balances of all of them to calculate your total RMD. However, you have flexibility in how you take the withdrawal. You can take the total RMD amount from just one of your IRAs or split it proportionally among them.

• Rule for 401(k)s: The aggregation rule does not apply to workplace plans. If you have multiple 401(k)s (e.g., from different former employers), you must calculate the RMD for each plan separately and take that specific amount from that specific plan.

Part 2: Your Life Expectancy Factor

The second part of the equation is a divisor provided by the IRS in their official Life Expectancy Tables. This factor represents the average remaining life expectancy for a person of your age.

• The Uniform Lifetime Table: This is the table used by nearly all account owners to calculate their RMD. It is based on the joint life expectancy of the account owner and a hypothetical beneficiary who is 10 years younger. You simply find your age for the distribution year in the table to get your factor.

• The Joint Life and Last Survivor Table: This table is used only in a very specific circumstance: if your sole beneficiary of the IRA is your spouse who is more than 10 years younger than you. Using this table results in a larger life expectancy factor and thus a smaller RMD, allowing more money to remain in the account and continue growing tax-deferred.

• The Single Life Table: This table is primarily used by beneficiaries who have inherited a retirement account.

The High Stakes of Non-Compliance: The RMD Penalty

The penalty for failing to take your full RMD by the deadline is severe. It is designed to strongly discourage anyone from ignoring the rule.

Thanks to the SECURE 2.0 Act, the penalty has been reduced from its former level of 50%. The current penalty is 25% of the amount you failed to withdraw. For example, if your RMD was $20,000 and you only withdrew $15,000, you have a shortfall of $5,000. The penalty would be 25% of that $5,000, or $1,250.

The law also provides an incentive for quickly fixing the mistake. If you correct the shortfall within a “correction window” (generally within two years), the penalty is further reduced to 10%. Even at this reduced rate, it remains one of the most punitive penalties in the U.S. tax code, making accuracy and timeliness absolutely essential.

Advanced RMD Topics and Strategies

For savvy retirees, RMDs are not just an obligation but an opportunity for strategic financial planning.

Inherited IRAs and the 10-Year Rule

The SECURE Act dramatically changed the rules for most non-spouse beneficiaries who inherit a retirement account.

• The 10-Year Rule: For most beneficiaries (e.g., children, grandchildren), the entire balance of the inherited IRA must be distributed by the end of the 10th year following the death of the original owner. This eliminated the popular “stretch IRA” strategy for most heirs.

• Annual RMDs within the 10 Years: Recent IRS clarification indicates that if the original account owner had already begun taking RMDs before their death, the beneficiary must also take annual RMDs during the 10-year period, based on their own life expectancy, before emptying the account in year 10. This is a common point of confusion.

• Exceptions for “Eligible Designated Beneficiaries”: A special category of beneficiaries, including surviving spouses, minor children of the original owner, and disabled or chronically ill individuals, are exempt from the 10-year rule and can still stretch withdrawals over their own life expectancy.

Qualified Charitable Distributions (QCDs)

This is arguably the most powerful RMD strategy for charitably inclined individuals.

• What it is: If you are age 70½ or older, you can donate up to $105,000 (a figure indexed to inflation) per year directly from your IRA to a qualified public charity.

• The Dual Benefit: This donation counts toward satisfying your RMD for the year. Even better, the amount of the QCD is completely excluded from your Adjusted Gross Income (AGI).

• Why it Matters: By lowering your AGI, a QCD can help you avoid or reduce taxes on your Social Security benefits, lower your Medicare Part B and D premiums, and potentially keep you out of a higher tax bracket. It is a far more tax-efficient way to give than writing a check and taking a standard charitable deduction.

The “Still Working” Exception for 401(k)s

If you are still working past your RMD age (73 or 75), you can generally delay taking RMDs from your current employer’s 401(k) plan until you actually retire. This exception only applies if you do not own more than 5% of the company. Importantly, this exception does not apply to your IRAs or to 401(k)s from any previous employers; you must still take RMDs from those accounts.

From Obligation to Opportunity

Required Minimum Distributions mark the final and most critical phase of your retirement journey. They are an unavoidable legal obligation that demands your attention and precision. But with a clear understanding and the right tools, you can transform this obligation into an opportunity for strategic financial management.

Use our RMD Calculator to eliminate guesswork and ensure perfect compliance, protecting your hard-earned assets from severe penalties. Then, go a step further. Use your knowledge of the rules to make smart decisions about taxes, charitable giving, and estate planning. By mastering your RMDs, you can ensure that your retirement is not only secure, but also as efficient and impactful as possible.