Required Minimum Distributions (RMDs): What You Need to Know
When it comes to retirement, one of the most important—but often surprising to learn—rules is the Required Minimum Distribution (RMD). RMDs are mandatory withdrawals from certain retirement accounts that begin after a specific age. Failing to take RMDs on time can result in tax penalties, so it’s important to understand how they work and how to plan for them.
What Is an RMD?
A Required Minimum Distribution is the minimum amount you must withdraw annually from your tax-deferred retirement accounts once you reach a certain age. These withdrawals are mandated by the IRS to ensure that retirement savings eventually become taxable income.
How is an RMD Calculated?
The IRS provides life expectancy tables to calculate RMDs. The most common is the Uniform Lifetime Table, which assumes a generic life expectancy based on age. The formula is:
For example, if you’re 75 and your IRA had $500,000 on December 31 of last year, and your life expectancy factor is 24.6, your RMD would be $500,000 ÷ 24.6 = $20,325.20
See Retirement topics – Required minimum distributions (RMDs) | Internal Revenue Service for the lifetime tables used in for the Life Expectancy.
What Accounts are Subject to RMD Rules?
RMD rules apply to most Pre-Tax Retiremetn Accounts to certain types of retirement accounts:
| Accounts Subject to Regular RMD Rules | Accounts Subject to Special RMD Rules | Accounts Not Subject to RMD Rules |
| Traditional IRA | Inherited Traditional IRA | Taxable Accounts |
| SEP IRA | Inherited Roth IRA | Roth IRA (original owner) |
| SIMPLE IRA | Beneficiary IRA (10-Year Rule Applies) | Roth 401(k) |
| Pre-Tax 401(k) | Non-Spouse Beneficiary 401(k) | Health Savings Account (HSA) |
| Pre-Tax 403(b) | 403(b) inherited pre-2020 | Education Savings Accounts (ESA/529) |
| Governmental 457(b) | Trust as Beneficiary of IRA | UGMA/UTMA Accounts |
| Profit-Sharing Plan | Inherited Employer Plans (varies) | Life Insurance Cash Value Accounts |
| Cash Balance Pension Plan |
When do RMD's Begin?
RMD’s begin based on when you were born. Here is a table of the dates and ages for starting:
| Birth Year | RMD Starting Age |
| Before July 1, 1949 | 70½ |
| July 1, 1949 – 1950 | 72 |
| 1951 – 1959 | 73 |
| 1960 or later | 75 |
You must take your first RMD by April 1 of the year after you reach your required beginning age. After that, RMDs are due by December 31 of each year.
Note: Delaying your first RMD until April 1 means you’ll take two RMDs in one tax year (the one for the previous year and the current year), which could increase your tax liability.
If You Miss an RMD
The penalty for missing an RMD is steep: 25% of the amount not withdrawn (reduced to 10% if corrected in a timely manner, generally within two years). The IRS may waive the penalty if there’s reasonable cause and the shortfall is corrected.
Why RMD's are so Important
RMDs are so impactful because failing to plan for them can lead to missed opportunities and costly consequences.
Without proper planning, you risk triggering the “Tax Torpedo,” where RMDs increase your taxable income, causing a ripple effect: higher taxes on Social Security benefits, elevated Medicare premiums, and a potentially much larger lifetime tax bill.
You could also miss the chance to perform strategic Roth conversions in early retirement—before RMDs begin—when your tax rates may be lower. Once RMDs start, you cannot convert them to a Roth IRA, closing off one of the most powerful tax planning tools available.
This article offers a foundational overview of RMD rules, but there’s much more to explore—such as charitable giving strategies like Qualified Charitable Distributions (QCDs), account aggregation rules, and optimizing across multiple accounts.