Required Minimum Distributions (RMDs) — What, When, and Why

You spent decades putting money into your retirement accounts, watching it grow tax-deferred. But the IRS never forgot about their share. At a certain age, they require you to start withdrawing — and paying taxes on — a portion of that money every year. These mandatory withdrawals are called Required Minimum Distributions, or RMDs.

Why Do RMDs Exist?

When you contributed to a Traditional 401(k) or Traditional IRA, you got a tax break upfront — your contributions reduced your taxable income that year. The deal was: pay taxes later, when you withdraw.

The IRS created RMDs to make sure "later" actually happens. Without them, people could theoretically keep money in tax-deferred accounts forever, passing them to heirs without ever paying income tax. RMDs close that loophole.

Which Accounts Are Affected?

Not all retirement accounts have RMDs.

Subject to RMDs:

• Traditional 401(k)
• Traditional IRA
• SEP-IRA
• SIMPLE IRA
• Most inherited retirement accounts

NOT subject to RMDs (during your lifetime):

• Roth IRA
• Roth 401(k) — as of 2024, SECURE 2.0 eliminated Roth 401(k) RMDs
• An active 401(k) at your current employer (if still working)

When Do RMDs Start?

Under the SECURE 2.0 Act (passed in 2022), the RMD starting age is now 73. It was previously 72, and before that 70½. Congress has gradually pushed the age back, and it's scheduled to move to 75 in 2033.

How Much Do You Have to Withdraw?

Your RMD amount is calculated each year using a simple formula:

RMD = Account Balance ÷ IRS Life Expectancy Factor

The IRS publishes a Uniform Lifetime Table that assigns a life expectancy factor based on your age. You don't need to memorize it — your account custodian (Vanguard, Fidelity, Schwab, etc.) will calculate it for you. But it helps to understand the math.

If you have multiple IRAs, you calculate RMDs separately for each but can withdraw the total from any one of them. For 401(k)s, each account requires its own separate withdrawal.

What Happens If You Miss an RMD?

The penalty used to be a steep 50% of the amount you failed to withdraw. SECURE 2.0 reduced it to 25% — or as low as 10% if you fix the mistake quickly. Either way, it's a significant penalty worth avoiding.

Strategies to Reduce Your RMD Burden

RMDs are taxable income. Large RMDs can push you into a higher tax bracket, increase your Medicare premiums (IRMAA surcharges), and make more of your Social Security benefits taxable. Planning ahead — ideally years before 73 — can significantly reduce the damage.

1. Roth Conversions (Ages 60–72)

The years between retirement and RMD age are a golden window. If your income is lower than it will be once RMDs kick in, you can convert portions of your Traditional IRA to a Roth IRA each year — paying taxes now at a lower rate to permanently reduce your future RMD balance.

This isn't about timing the market. It's about deliberately managing which tax bracket you occupy each year.

2. Qualified Charitable Distributions (QCDs)

If you're 70½ or older and charitably inclined, you can donate up to $105,000 per year (2025 limit, indexed for inflation) directly from your IRA to a qualified charity. This counts toward your RMD but is excluded from your taxable income — a clean, efficient strategy if giving is already part of your plan.

3. Keep Working

If you're still employed at 73 and participating in your current employer's 401(k), you can generally delay RMDs on that specific account until you retire. This doesn't apply to IRAs or old 401(k)s from previous employers.

4. Spend Down Pre-Tax Accounts Early

Simply drawing from your Traditional accounts before 73 — even if you don't need to — can reduce the balance subject to RMDs. Combined with Roth conversions, this is a core part of a tax-efficient retirement income plan.

Inherited IRAs and RMDs

If you inherit a retirement account, different rules apply. Under the SECURE Act (2019), most non-spouse beneficiaries must empty the inherited account within 10 years. The rules here are nuanced and worth discussing with a tax advisor, as the optimal withdrawal schedule depends on your own income level each year.

---

Key Takeaways

• RMDs are mandatory annual withdrawals from pre-tax retirement accounts, starting at age 73
• Roth IRAs are exempt from RMDs during your lifetime — a significant long-term advantage
• Your RMD = account balance ÷ IRS life expectancy factor, recalculated every year
• Missing an RMD triggers a 25% penalty on the missed amount
• The years between 60 and 72 are your best window to reduce future RMD impact through Roth conversions and strategic spending
• QCDs let charitably inclined retirees satisfy RMDs without adding to taxable income

---