Starting at age 73 (or 75 if you were born in 1960 or later), the IRS requires you to withdraw money from your traditional retirement accounts — whether you need it or not. Miss the deadline and the penalty is 25% of the amount you should have withdrawn. This guide covers how to calculate your RMDs, when they start, and strategies to minimize the tax hit.
The logic behind RMDs is straightforward: the IRS gave you a tax deduction when you contributed to your 401(k) or traditional IRA. They let that money grow tax-deferred for decades. RMDs are when they come to collect. Understanding the mechanics helps you plan for the tax impact and potentially reduce it.
What Are RMDs?
When you contribute to traditional retirement accounts like 401(k)s and IRAs, you get a tax deduction upfront. The IRS allows this tax-deferred growth, but eventually wants its share. RMDs ensure you withdraw money (and pay taxes) from these accounts during your lifetime.
Key points about RMDs:
- They are mandatory - you must take them or face penalties
- They are calculated based on your account balance and life expectancy
- They are taxed as ordinary income in the year withdrawn
- They increase the percentage withdrawn as you age
Which Accounts Require RMDs?
RMDs Required
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- 457(b) plans
- Inherited IRAs (all types)
No RMDs Required (During Owner's Life)
- Roth IRAs
- Roth 401(k)s (starting 2024)
- Health Savings Accounts (HSAs)
Roth 401(k) Change — Effective 2024
When Do RMDs Start?
The SECURE 2.0 Act changed RMD starting ages. Your RMD starting age depends on when you were born:
| Birth Year | RMD Starting Age |
|---|---|
| 1950 or earlier | 72 (already started) |
| 1951 - 1959 | 73 |
| 1960 or later | 75 |
First RMD deadline: You must take your first RMD by April 1 of the year after you reach your RMD age. All subsequent RMDs must be taken by December 31.
The First-Year Trap
How to Calculate Your RMD
Your RMD is calculated by dividing your account balance by a life expectancy factor from IRS tables.
RMD Formula
Account Balance (Dec 31 prior year) ÷ Life Expectancy Factor = RMD
Example calculation for age 75:
- Account balance (Dec 31): $500,000
- Life expectancy factor at 75: 24.6
- RMD = $500,000 ÷ 24.6 = $20,325
Sample life expectancy factors (Uniform Lifetime Table):
| Age | Factor | % of Account |
|---|---|---|
| 73 | 26.5 | 3.77% |
| 75 | 24.6 | 4.07% |
| 80 | 20.2 | 4.95% |
| 85 | 16.0 | 6.25% |
| 90 | 12.2 | 8.20% |
Aggregate RMDs for IRAs
Penalties for Missing RMDs
Missing or under-withdrawing your RMD triggers significant penalties:
RMD Penalty
25% excise tax on the amount not withdrawn (reduced from 50% by SECURE 2.0)
If you correct the mistake within 2 years (during the "correction window"), the penalty is reduced to 10%.
To avoid penalties:
- Set calendar reminders for RMD deadlines
- Consider automatic distributions from your custodian
- Double-check calculations or use custodian-provided figures
- Keep records of all distributions
RMD Planning Strategies
Smart RMD planning can help minimize taxes and maximize your retirement income.
Qualified Charitable Distributions (QCDs)
If you are 70½ or older, you can donate up to $105,000 per year directly from your IRA to qualified charities. This satisfies your RMD without increasing your taxable income.
Benefits of QCDs:
- Satisfies RMD requirement
- Excludes distribution from taxable income
- Works even if you do not itemize deductions
- Can reduce Medicare premium surcharges (IRMAA)
QCD Requirements — Get This Right
Roth Conversions Before RMDs Start
Converting traditional IRA funds to a Roth IRA before RMDs begin can reduce future RMDs and create tax-free income. This strategy works best when:
- You have years between retirement and RMD age
- You are in a lower tax bracket now than you expect in the future
- You have funds outside your IRA to pay conversion taxes
- You want to leave tax-free assets to heirs
Other RMD Strategies
- Still working exception: If still employed at 73+, you may delay RMDs from your current employer's 401(k) (does not apply to IRAs or former employer plans)
- Reinvest in taxable accounts: If you do not need RMD income, invest it in a taxable brokerage account for continued growth
- Use for big expenses: Time major purchases (car, home repairs) to coincide with RMD income
- Bunch deductions: If itemizing, bunch charitable donations in years with higher RMDs
Your Next Steps
- Know your RMD starting age based on your birth year
- Inventory all retirement accounts subject to RMDs
- Check with your custodian - most calculate RMDs for you
- Consider Roth conversions before RMDs begin to reduce future requirements
- Plan for taxes - RMDs are taxable income that may affect Social Security taxation and Medicare premiums
Plan Your Total Retirement Income
Your Social Security income is a major factor in how RMDs affect your tax situation. Use our calculator to see your expected benefit at different claiming ages, then plan your RMD strategy around your total retirement income picture.
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