A Simple Guide to Required Minimum Distributions

When Do RMDs Begin?

Your RMD starting age depends on the year you were born:

• If you were born from 1951 through 1959, RMDs generally begin at age 73.
• If you were born in 1960 or later, RMDs generally begin at age 75.

Your first RMD is technically due by April 1 of the year after you reach your applicable starting age. However, delaying that first distribution means you will also need to take your second RMD by December 31 of the same year. This could result in two taxable distributions being reported in one calendar year, potentially increasing your tax bracket or affecting your Medicare premiums.

For that reason, waiting until the following April is not always the best choice, even when it is allowed.

Which Accounts Require RMDs?

RMDs generally apply to tax-deferred retirement accounts, including:

• Traditional IRAs
• SEP IRAs and SIMPLE IRAs
• 401(k), 403(b), and many 457(b) plans
• Other employer-sponsored retirement plans

Roth IRAs do not require distributions during the original owner’s lifetime. Beginning in 2024, designated Roth accounts within employer plans, such as Roth 401(k)s, are also no longer subject to lifetime RMDs.

Some employer plans may allow you to delay RMDs if you are still working and do not own more than 5% of the business sponsoring the plan. This exception does not apply to traditional, SEP, or SIMPLE IRAs.

How Is an RMD Calculated?

An RMD is generally calculated using the account balance as of December 31 of the previous year and a life-expectancy factor provided by the IRS.

As you get older, the applicable factor decreases, which generally causes the percentage you must withdraw to increase. Changes in the account’s value will also affect the calculation from one year to the next.

If you own multiple traditional IRAs, an RMD must be calculated for each account. However, you can generally combine those amounts and take the total from one IRA or split it among several. Employer plans can have different aggregation rules, so it is important to confirm the requirements before deciding which account will fund the distribution.

Planning Should Begin Before RMDs Do

For people with significant balances in tax-deferred retirement accounts, RMD planning should begin well before the first withdrawal is required.

Large account balances can eventually create sizable taxable distributions. Those withdrawals may affect your income tax bracket, Medicare premiums, and the taxation of your Social Security benefits. They can also reduce your ability to control your taxable income later in retirement.

The years between retirement and the beginning of RMDs may provide valuable planning opportunities. Depending on your circumstances, you might consider strategic IRA withdrawals, partial Roth conversions, or other ways to balance taxable and tax-free assets.

The goal is not necessarily to eliminate future RMDs. Instead, proactive planning may help prevent tax-deferred accounts from creating an unnecessarily large tax burden later.

What Can You Do With an RMD?

An RMD must leave the retirement account, but you are not required to spend it. If you do not need the money for living expenses, you may be able to reinvest the after-tax proceeds in a non-retirement account, add the money to your cash reserves, or use it toward another financial goal.

For those who are charitably inclined, a qualified charitable distribution, or QCD, may also be worth considering. Beginning at age 70½, an eligible IRA owner can transfer money directly from an IRA to a qualified charity. When completed correctly, a QCD can satisfy all or part of an RMD without the donated amount being included in taxable income.

What Happens If You Miss an RMD?

Failing to take the full RMD by the deadline can result in an excise tax on the amount that should have been withdrawn. The tax is generally 25% but may be reduced to 10% if the mistake is corrected within the permitted timeframe.

If you discover a missed RMD, it is important to address it promptly and consult with your financial advisor or tax professional about the appropriate corrective steps.

Inherited Retirement Accounts Have Their Own Rules

You do not have to be in your 70s to face an RMD. Beneficiaries of inherited retirement accounts may have distribution requirements regardless of their own age.

For many non-spouse beneficiaries who inherited an account from someone who died in 2020 or later, the account must be fully distributed by December 31 of the tenth year following the original owner’s death. This is commonly called the 10-year rule.

However, the 10-year rule does not always mean a beneficiary can simply leave the account untouched until the final year. If the original owner had already reached the point when RMDs were required, many beneficiaries must take annual distributions during years one through nine and fully empty the account by the end of year ten. If the owner died before RMDs began, annual withdrawals may not be required during those first nine years, although the account must still be emptied by the deadline.

Other important inherited-account considerations include:

• If the original owner had not completed the RMD for the year of death, the beneficiary may need to take the remaining amount.
• Spouses generally have more options, including the possibility of treating the account as their own.
• Certain beneficiaries—including disabled or chronically ill individuals, minor children of the owner, and beneficiaries close in age to the owner—may qualify for different rules.
• Inherited Roth IRAs are generally subject to beneficiary distribution rules even though Roth IRA owners do not take lifetime RMDs.

The timing of inherited IRA withdrawals can also have a meaningful tax impact. Waiting until the final years could create a large taxable event, while spreading distributions across several years may be more manageable. The most appropriate strategy depends on the size of the account, the beneficiary’s income, and other expected changes in their tax situation.

The Rules Are Only the Starting Point

Knowing how much must be withdrawn is important, but thoughtful RMD planning goes beyond satisfying an annual requirement. The timing of distributions, the accounts used, charitable goals, future tax exposure, and inherited-account rules all deserve consideration.

Reviewing these issues before RMDs begin—or soon after inheriting a retirement account—can provide more options and help the different pieces of your retirement and tax strategy work together.