What Are RMDs?
Required Minimum Distributions (RMDs) are mandatory annual withdrawals that the IRS requires account holders to take from most tax-deferred retirement accounts once they reach a certain age. The purpose is straightforward: the government allowed you to defer taxes on these contributions for decades — RMDs ensure that a portion of those funds is eventually withdrawn and taxed during your lifetime, rather than passing entirely tax-deferred to heirs.
Missing an RMD — or taking less than the required amount — triggers one of the harshest penalties in the tax code. Understanding RMDs well in advance allows you to plan around them rather than be surprised by them.
When Do RMDs Begin?
The age at which RMDs begin depends on your birth year, reflecting changes made by the SECURE Act (2019) and SECURE 2.0 Act (2022):
| Birth Year | RMD Starting Age | Note |
|---|---|---|
| 1950 or earlier | 70½ or 72 | Pre-SECURE Act rules applied |
| 1951–1959 | 73 | SECURE Act (2019) raised age from 70½ to 72; SECURE 2.0 (2022) raised to 73 |
| 1960 and later | 75 | SECURE 2.0 Act — effective for those born 1960 or later |
Special rule for 5% business owners: If you own 5% or more of the business sponsoring the plan, you must begin taking RMDs once you reach the applicable starting age, even if you are still actively working.
First RMD deadline: Your very first RMD can be delayed until April 1 of the year following the year you reach your starting age. All subsequent RMDs must be taken by December 31 of each year. Taking two RMDs in a single year (first + second year) can push you into a higher tax bracket — something to plan around.
Key Dates to Remember
First RMD Deadline
Your first RMD must be taken by April 1 of the year after you reach RMD starting age. After this, you cannot delay.
Annual RMD Deadline
All subsequent RMDs must be taken by December 31 of each year. Missing this date triggers the 25% excise tax penalty.
Which Accounts Are Subject to RMDs?
✕ Subject to RMDs
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- 457(b) plans (government)
- Other employer-sponsored plans
- Qualified annuities (within subject accounts)
✓ Exempt from RMDs
- Roth IRAs (during account holder’s lifetime)
- Roth 401(k)s (post-2024, SECURE 2.0)
- Non-qualified annuities
- Life insurance cash value (IUL, LIRP, Whole Life)
- Personal savings and brokerage accounts
- Roth beneficiary accounts (generally)
Multiple accounts: If you have multiple IRAs, you calculate the RMD for each separately but can take the total from one or any combination of them. For employer plans like 401(k)s, each plan’s RMD must be taken from that specific plan — you cannot aggregate them with IRAs.
How Is an RMD Calculated?
The IRS uses a simple formula based on your account balance at year-end and a life expectancy factor from the IRS Uniform Lifetime Table:
- Account balance: $500,000
- Life expectancy factor (age 75): 24.6
- Calculation: $500,000 ÷ 24.6
Required Minimum Distribution for the year. This amount must be withdrawn and will be taxed as ordinary income.
The life expectancy factor decreases as you age, meaning the percentage you must withdraw increases each year. A $500,000 account at age 75 requires about 4% withdrawn; by age 85 that percentage rises to approximately 6.8%.
The Penalty for Missing an RMD
Excise tax on any shortfall. If you fail to take your full RMD by the deadline, the IRS imposes a 25% excise tax on the amount that should have been — but was not — distributed. This is in addition to any regular income tax owed on the distribution. The penalty can be reduced to 10% if the shortfall is corrected within two years.
This is one of the harshest penalties in the tax code, and it applies even if the failure was inadvertent. If you discover you missed an RMD, take the distribution as soon as possible and file IRS Form 5329 to request a waiver of the penalty — the IRS sometimes grants waivers for reasonable cause.
Managing the Tax Impact of RMDs
RMDs add to your taxable income in the year they are taken. Large RMDs can push you into a higher tax bracket, increase Medicare Part B and D premiums (IRMAA surcharges), or make more of your Social Security income taxable. Strategic planning before RMDs begin can significantly reduce their tax impact:
- Roth Conversions before RMD age. Converting traditional IRA or 401(k) funds to a Roth IRA before RMDs begin reduces the future balance subject to RMDs. You pay taxes now on the converted amount, but Roth accounts have no RMDs during your lifetime and grow tax-free.
- Qualified Charitable Distributions (QCDs). If you are 70½ or older, you can donate up to $105,000 per year (2024 limit, indexed for inflation) directly from your IRA to a qualified charity. The distribution satisfies your RMD but is excluded from taxable income — a significant tax advantage for charitably inclined retirees.
- Invest in RMD-exempt products before retirement. Products like LIRP, IUL, and Roth IRAs are not subject to RMDs. Building these alongside traditional tax-deferred accounts gives you flexibility in retirement to control your taxable income.
- Take distributions strategically. Consider the timing of each year’s RMD relative to other income sources — Social Security, pension, part-time work — to minimize bracket impact. In lower-income years, taking distributions above the RMD minimum may be advantageous.
- Plan for the two-RMD year. If you delay your first RMD to April 1, you will take two RMDs in the same tax year (the first plus the current year’s). Evaluate whether it is better to take the first RMD in year one to spread the income over two tax years.
RMD planning is retirement planning. The size of your RMDs in retirement is largely determined by decisions made years before you retire — which accounts you build, how much you convert, and what products you hold. A licensed fiduciary can model your projected RMDs and help you take steps now to manage their impact. Contact us for a free consultation.