Required minimum distributions — universally known by the acronym RMDs — are mandatory annual withdrawals from certain tax-advantaged retirement accounts that the IRS requires once you reach a specified age. They exist because traditional IRAs and pre-tax employer retirement accounts represent tax-deferred income — money that has never been taxed — and the government, having deferred taxation for decades, eventually requires that taxation to occur before the account holder’s death. Understanding when RMDs begin, how they are calculated, what the penalties for missing them are, and how to manage their tax impact is essential retirement planning knowledge that becomes increasingly important as traditional IRA and 401(k) balances grow.
Which Accounts Require RMDs and When They Begin
Traditional IRAs, SEP-IRAs, SIMPLE IRAs, and pre-tax 401(k), 403(b), and 457(b) accounts are all subject to required minimum distributions. The SECURE 2.0 Act changed the RMD beginning age to 73 for individuals who turned 72 after December 31, 2022, with a further increase to age 75 scheduled for individuals born in 1960 or later. Roth IRAs — funded with after-tax dollars — are specifically exempt from RMDs during the account owner’s lifetime, which is one of their most significant estate planning advantages. Roth 401(k) accounts were historically subject to RMDs but SECURE 2.0 also eliminated RMDs from Roth designated accounts in employer plans starting in 2024.
Still-working employees who do not own more than five percent of the company sponsoring their employer plan can generally defer RMDs from that specific employer plan until they retire, regardless of age. They must still take RMDs from any other retirement accounts. This provision creates a planning opportunity for older workers who continue working in situations where their employer plan has good investment options — keeping assets in the employer plan during continued employment avoids RMDs from those assets while still employed.
How RMD Amounts Are Calculated
The RMD for each account is calculated by dividing the account’s prior December 31 balance by a life expectancy factor from IRS life expectancy tables. The Uniform Lifetime Table, used for most account owners, provides factors based on age — at age 73, the factor is 26.5, meaning an account balance of $500,000 requires a minimum distribution of $500,000 divided by 26.5, approximately $18,868. At age 80, the factor is 20.2, producing a minimum distribution of approximately $24,752 on the same balance. The factor decreases each year, increasing the minimum distribution percentage of the account balance as the account holder ages.
When an account owner has multiple IRA accounts, each account’s RMD is calculated separately, but the total can be withdrawn from any combination of the IRA accounts — not necessarily from each account proportionally. This aggregation rule provides flexibility in choosing which accounts to draw from, though the calculation begins with each account individually. 401(k) and other employer plan RMDs must be taken separately from each plan account rather than aggregated with IRAs or between employer plans at different companies.
The Penalty for Missing RMDs and Strategies to Manage Tax Impact
The penalty for failing to take the required minimum distribution is substantial — 25 percent of the amount that should have been distributed but was not (reduced to 10 percent if corrected promptly). The IRS has shown some willingness to waive penalties for first-time mistakes corrected quickly, but the penalty exposure makes it essential to establish a system that ensures RMDs are calculated correctly and taken by December 31 of each year (with the first RMD permitted by April 1 of the year following the year you reach RMD age — though delaying the first RMD until April 1 causes two RMDs in the following calendar year).
For retirees with large traditional IRA and 401(k) balances, RMDs can push taxable income into higher brackets, trigger higher Medicare premium surcharges, and increase the taxable portion of Social Security benefits. Strategies to manage this tax impact include Roth conversions before RMDs begin — converting traditional IRA balances to Roth in years when income is lower than expected to reduce the future RMD obligation. Qualified charitable distributions — directing RMDs directly to charity for those 70½ and older — satisfy the RMD requirement without including the amount in taxable income. Coordinating Social Security claiming age and Roth conversion strategy to manage total taxable income in early retirement years before RMDs begin can meaningfully reduce the long-term tax burden of large retirement account balances.
