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Required Minimum Distributions (RMDs) Explained Simply
You’ve been saving for retirement for decades. Now the IRS wants its cut — and it has rules about when you must start taking it. Understanding required minimum distributions is one of the most important financial tasks for anyone with a traditional IRA, 401(k), or other tax-deferred retirement account. Miss an RMD, and the penalty can be severe.
Don’t worry — this guide explains RMDs in plain language, covers the key rules, and offers strategies to manage them wisely.
Key Takeaways
- RMDs are mandatory withdrawals from tax-deferred retirement accounts starting at age 73 or 75 (depending on birth year), regardless of whether you need the money.
- The SECURE 2.0 Act raised the RMD starting age for people born after 1950, pushing it from 72 to 73 or 75 for younger retirees.
- Missing an RMD carries a steep penalty of 25% of the shortfall amount (or 10% if corrected within two years).
- Smart strategies like Roth conversions and Qualified Charitable Distributions can significantly reduce your RMD tax burden.
- You have flexibility in how you take RMDs — you can take more than the minimum, aggregate multiple accounts, or use RMDs for charitable giving.
- Roth IRAs owned by you don’t require RMDs during your lifetime, making them valuable tax-planning tools.
What Is an RMD?
A Required Minimum Distribution is the minimum amount the IRS requires you to withdraw from your tax-deferred retirement accounts each year, starting at a certain age. The purpose is straightforward: you’ve received a tax break on this money for decades. By deferring taxes on your contributions and investment gains, you’ve had more money working for you. Now the government wants to ensure it collects taxes on these funds before you (or your heirs) can simply let them sit tax-deferred indefinitely.
Think of RMDs as the IRS calling in its loan. You borrowed the tax advantage, and now you must repay it by taking distributions and paying income tax on them.
Which Accounts Require RMDs?
RMDs apply to most tax-deferred retirement accounts, including:
- Traditional IRAs
- SEP-IRAs (Simplified Employee Pension IRAs)
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans (used by schools and nonprofits)
- 457(b) plans (government employee plans)
- Inherited IRAs (with different rules — see section below)
Important exception: Roth IRAs owned by the original owner do NOT require RMDs during the owner’s lifetime. This is one major advantage of Roth accounts and a powerful reason to consider converting traditional IRA funds to a Roth before RMD age.
When Must You Start Taking RMDs?
The SECURE 2.0 Act, enacted in 2022, changed the RMD starting age — a significant change for younger retirees. Here’s where things stand in 2026 and beyond:
| Birth Year | RMD Starting Age |
|---|---|
| Before 1951 | Already required (started at 70½ or 72) |
| 1951–1959 | Age 73 |
| 1960 or later | Age 75 |
Important Timing Rules
The timing of when you take your first RMD matters for tax purposes:
- Your first RMD must be taken by April 1 of the year after you reach your RMD starting age. For example, if you turn 73 in 2024, your first RMD must be withdrawn by April 1, 2025.
- All subsequent RMDs are due by December 31 each calendar year.
- The two-RMD problem: If you delay your first RMD until April 1 of the following year, you’ll need to take two RMDs in that single calendar year — one “late” first RMD and one regular second-year RMD. This can be problematic because it significantly increases your taxable income in one year, potentially pushing you into a higher tax bracket and affecting other aspects of your taxes (such as Medicare premiums, which are partly based on income).
Smart move: Most financial advisors recommend taking your first RMD by December 31 of the year you reach RMD age, rather than waiting until April 1 of the following year. This spreads the tax impact across two years instead of bunching two RMDs into one.
How Is Your RMD Amount Calculated?
The RMD calculation is straightforward — it’s the one part of the RMD process you don’t need to worry much about because your financial institution will usually calculate it for you. However, understanding how it works helps you verify the number and plan accordingly.
The RMD Formula
Your RMD is calculated using this simple formula:
Account Balance (December 31 of prior year) ÷ Life Expectancy Factor (from IRS table) = RMD Amount
The IRS provides standardized life expectancy factors called the Uniform Lifetime Table. These factors assume a longer lifespan than in previous generations, which means your RMD is usually smaller as a percentage of your account balance.
RMD Calculation Example
Let’s walk through a realistic example:
Sarah is 75 years old. On December 31, 2024, her traditional IRA balance was $500,000. According to the IRS Uniform Lifetime Table, the life expectancy factor for age 75 is 24.6.
Her RMD calculation for 2025:
$500,000 ÷ 24.6 = $20,325.58
Sarah must withdraw at least $20,325.58 from her IRA during 2025. She can take it all at once, in monthly amounts, or in any combination — as long as the total meets the minimum by December 31, 2025.
How the Factor Changes Over Time
The life expectancy factor decreases each year, which means your RMD percentage of your remaining account balance increases slightly as you age. Here’s a simplified example:
- Age 73: Factor of 26.5 (RMD is about 3.8% of balance)
- Age 80: Factor of 20.2 (RMD is about 5% of balance)
- Age 90: Factor of 11.4 (RMD is about 8.8% of balance)
Even in your 90s, the RMD percentage remains manageable for most retirees — which is why the IRS assumes you’ll eventually spend down these accounts.
Your Financial Institution’s Role
Your IRA custodian (your bank, brokerage firm, or investment company) is required to calculate your RMD and notify you of the amount by January 31 each year. Many institutions will even set up automatic monthly distributions if you’d like to spread the withdrawal across the year. However, the final responsibility for taking the RMD rests with you. Don’t assume your bank will automatically take it — always verify that your RMD was actually withdrawn.
What Happens If You Miss an RMD?
Missing an RMD is one of the costliest retirement mistakes you can make. The penalties are severe and have increased in recent years as part of the SECURE 2.0 Act changes.
RMD Penalty Amounts
- Standard penalty: 25% of the shortfall amount. If you were supposed to withdraw $20,000 and you took nothing, the penalty is $5,000.
- Reduced penalty: 10% if corrected within two years. If you catch your mistake early and withdraw the missed amount plus take the next year’s RMD on time, the penalty drops to 10%.
- Additional tax: You still owe ordinary income tax on the amount that should have been withdrawn, on top of the penalty.
Example of the Cost
Let’s say Tom turned 73 and should have taken an RMD of $22,000. He forgot about it and didn’t withdraw anything that year.
- RMD that should have been taken: $22,000
- Penalty (25%): $5,500
- Ordinary income tax on the $22,000 (assume 24% federal bracket): $5,280
- Total cost: $10,780 — nearly half of the RMD amount!
This illustrates why staying on top of RMDs is critical.
How to Correct a Missed RMD
If you realize you missed an RMD, don’t panic. The IRS has a formal correction process:
- Take the missed withdrawal immediately. Withdraw the amount you should have taken as soon as possible.
- File Form 5329 with your tax return. This form reports the missed RMD and explains the situation.
- Request a penalty waiver. If you have a reasonable explanation (such as cognitive decline, poor advice from a financial advisor, or genuine confusion about the rules), the IRS may waive the penalty. Many taxpayers who file Form 5329 with a reasonable explanation get the penalty waived entirely.
- Consider hiring a tax professional. A CPA or tax attorney can help navigate the correction process and increase the likelihood of a penalty waiver.
Smart Strategies for Managing RMDs
RMDs don’t have to be a burden. With proper planning, you can minimize the tax impact and even use RMDs to advance your financial goals.
Strategy 1: Roth Conversions Before RMDs Begin
One of the most powerful RMD management strategies is converting traditional IRA funds to a Roth IRA before you reach RMD age.
How it works: You withdraw money from your traditional IRA (paying income tax on the conversion), then deposit it into a Roth IRA. The converted amount grows tax-free and never requires RMDs from you during your lifetime.
Best timing: If you’re 60–72 and in a relatively low tax bracket (perhaps you’ve retired early or taken a sabbatical), a Roth conversion can be powerful. You pay tax at a lower rate now, and the converted funds are tax-free forever.
Real example: James is 68 and retired early. His taxable income that year is low — just $40,000 from Social Security and a pension. He converts $100,000 from his traditional IRA to a Roth IRA. The conversion adds $100,000 to his taxable income, bringing it to $140,000. At current tax rates, he might pay roughly $22,000 in federal tax on the conversion (using 2024 tax brackets). But the $100,000 now grows completely tax-free, and he’ll never have to take RMDs on it. Over 25 years, if it grows to $400,000, all that growth is tax-free income — making the conversion highly valuable.
Strategy 2: Qualified Charitable Distributions (QCDs)
If you’re charitably inclined, a Qualified Charitable Distribution is one of the best tax moves available to retirees.
How it works: You transfer money directly from your IRA to a qualified charity. The amount satisfies your RMD requirement and doesn’t count as taxable income on your tax return.
Key benefits:
- The QCD amount satisfies your RMD without increasing your taxable income
- You don’t have to itemize deductions to get the benefit (unlike charitable deductions normally)
- It can help keep your income below Medicare income thresholds (which affect your premiums)
- Annual limit: $105,000 per person (2026 limit, adjusted for inflation annually)
Important requirements:
- You must be age 70½ or older
- The distribution must go directly to a qualified charity (the check goes to the charity, not to you)
- The charity must be a qualified organization (most 501(c)(3) charities qualify; donor-advised funds don’t)
- Contact your IRA custodian and request a “direct charitable distribution”
Example: Margaret is 76 and her RMD is $25,000. She plans to donate $20,000 to her favorite nonprofit anyway. Instead of withdrawing the $25,000 (which is taxable) and writing a check to the charity, she asks her IRA custodian to send $20,000 directly to the charity. That $20,000 counts toward her RMD and isn’t taxable income. She only needs to withdraw $5,000 from the IRA to meet her full RMD. She’s reduced her taxable income by $20,000 — a huge benefit.
Strategy 3: Keep Investing RMDs You Don’t Need
Just because you must withdraw your RMD doesn’t mean you have to spend it. If you don’t need it for living expenses, you can reinvest it in a taxable brokerage account.
How this works: You take your RMD and move it to a regular (taxable) investment account. You’ll pay income tax on the distribution, but the money continues working and growing for you. Any future gains in the taxable account will be subject to capital gains tax (usually lower than income tax rates) rather than ordinary income tax.
Benefit for wealthy retirees: If you have substantial assets beyond what you’ll need to spend, reinvesting RMDs allows your overall wealth to continue growing while managing the tax impact.
Strategy 4: Aggregate Multiple IRAs
If you have multiple traditional IRAs, you have flexibility in how you take RMDs.
The aggregation rule: You calculate the total RMD across all your traditional IRAs, but you can take the entire amount from just one account (or any combination) if you prefer.
Why this matters: Suppose you have a $400,000 IRA earning 6% annually and a $100,000 IRA in low-return bonds. You could take your