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Required Minimum Distributions (RMDs): The Rules You Must Follow

4 min read

The IRS lets you defer taxes in retirement accounts for decades, but not forever. Required Minimum Distributions (RMDs) are the government's way of saying: it's time to pay up. Here's everything you need to know.

When RMDs Begin

Thanks to the SECURE 2.0 Act, the RMD age has shifted:

  • Age 73 if you were born between 1951 and 1959
  • Age 75 if you were born in 1960 or later
  • Age 72 (the old rule) still applies if you were born before July 1, 1949

You must take your first RMD by April 1 of the year following the year you hit the triggering age. Every subsequent RMD is due by December 31 of that year. Beware: taking two RMDs in your first year (one by April 1, another by December 31) can spike your taxable income.

Which Accounts Are Affected?

RMDs apply to pre-tax retirement accounts:

  • Traditional IRAs (including SEP and SIMPLE IRAs)
  • Traditional 401(k), 403(b), and 457(b) plans
  • Inherited IRAs (with their own separate, faster rules)

Roth accounts (Roth IRA, Roth 401(k)) are not subject to RMDs during the original owner's lifetime — one of their biggest advantages. However, Roth 401(k) balances can be rolled to a Roth IRA to avoid the RMD rule that still applies to employer-plan Roth accounts.

How RMDs Are Calculated

The formula:

RMD = Account Balance (as of December 31 of previous year) ÷ IRS Life Expectancy Factor

The IRS provides Uniform Lifetime Tables with divisors that decrease as you age. At 73, the divisor is 24.7 — meaning you must withdraw roughly 4.05% of your balance. By 85, you're withdrawing roughly 6.25%. By 95, nearly 11.6%.

Example: $500,000 balance at 73 → $500,000 ÷ 24.7 = roughly $20,243 RMD.

The Penalty for Missing an RMD

The penalty was once a brutal 50% of the missed amount. SECURE 2.0 reduced it to 25%, and just 10% if you correct the error within two years by filing Form 5329 and taking the missed distribution. That's still expensive — miss a $20,000 RMD and you're looking at a $2,000–$5,000 penalty even after correction.

Strategies to Reduce RMD Impact

  • Roth conversions before RMD age: Convert Traditional IRA dollars to Roth during low-income years (between retirement and RMD age). You pay tax now, but the converted dollars grow tax-free and never trigger RMDs.
  • Qualified Charitable Distributions (QCDs): Starting at age 70.5, you can direct up to $108,000 per year (2025, indexed) from your IRA directly to charity. It counts toward your RMD and is excluded from taxable income.
  • Keep working past RMD age: If you're still employed and don't own more than 5% of the company, RMDs from that employer's 401(k) can be delayed until you actually retire.
  • Spend from taxable accounts first early in retirement to preserve tax-deferred growth and keep future RMDs manageable.

RMDs are one of the most overlooked planning considerations in retirement. Ignoring them doesn't just mean a bigger tax bill — it means a penalty, too.