What Are Required Minimum Distributions?
Required Minimum Distributions (RMDs) are mandatory withdrawals you must take from certain retirement accounts once you reach a specific age. The IRS requires these distributions to ensure you eventually pay taxes on money that has grown tax-deferred in accounts like traditional IRAs and 401(k)s.
Think of RMDs as the government's way of saying, "You've enjoyed tax benefits long enough—now it's time to pay taxes on this money."
When Do RMDs Begin?
For most people, RMDs begin at age 73. This age increased from 72 due to the SECURE Act 2.0. You must take your first RMD by April 1 of the year following the year you turn 73.
Here's a practical example: If you turn 73 in 2026, you have until April 1, 2027, to take your first RMD. However, if you delay your first RMD until 2027, you'll also need to take your second RMD by December 31, 2027—meaning two distributions in one tax year.
Important exception: If you're still working and participating in your employer's 401(k), you may delay RMDs from that specific account until you retire, provided you don't own 5% or more of the company.
Which Accounts Require RMDs?
Accounts subject to RMDs:
- Traditional IRAs
- SEP-IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- Most other employer-sponsored retirement plans
Accounts NOT subject to RMDs:
- Roth IRAs (during the owner's lifetime)
- Roth 401(k)s (though this changes in 2026—Roth 401(k)s will no longer require RMDs)
How to Calculate Your RMD Amount
Calculating your RMD involves two key numbers:
- Account balance: The fair market value of your retirement account as of December 31 of the previous year
- Life expectancy factor: Found in IRS Publication 590-B
The formula: Account Balance ÷ Life Expectancy Factor = RMD Amount
Example calculation:
- Account balance on December 31, 2025: $500,000
- Age 73 life expectancy factor: 26.5
- RMD for 2026: $500,000 ÷ 26.5 = $18,868
Most financial institutions will calculate this for you, but understanding the process helps you plan ahead.
RMD Rules for Multiple Accounts
If you have multiple IRAs, you must calculate the RMD for each account separately. However, you can take the total amount from any combination of your IRAs.
Example: You have three IRAs with RMDs of $5,000, $8,000, and $3,000 respectively. You could take the full $16,000 from just one account if you prefer.
Important note: This flexibility doesn't apply to 401(k)s or other employer plans. You must take the RMD from each individual 401(k) account.
Penalties for Missing RMDs
The penalty for missing an RMD is severe: 25% of the amount you should have withdrawn. Recent legislation reduced this from the previous 50% penalty, but it's still substantial.
Example: If your RMD was $20,000 and you forgot to take it, the penalty would be $5,000.
The good news: If you correct the mistake quickly and can show reasonable cause, the IRS may reduce the penalty to 10%.
Smart RMD Strategies
Timing withdrawals: Consider spreading RMDs throughout the year rather than taking one lump sum. This approach can help with tax planning and market timing.
Tax withholding: You can choose to have taxes withheld from your RMD or pay estimated taxes separately. Consider your overall tax situation when deciding.
Charitable giving: If you're charitably inclined, consider a Qualified Charitable Distribution (QCD). You can donate up to $100,000 directly from your IRA to charity, and it counts toward your RMD while avoiding income tax on the distribution.
Planning Ahead
Start planning for RMDs several years before age 73. Consider strategies like Roth conversions in lower-income years to reduce future RMD amounts. Also, organize your accounts—consolidating multiple IRAs can simplify RMD calculations and management.
Remember, RMDs represent a significant shift in retirement planning. You're moving from accumulation to distribution phase, and understanding these rules helps ensure you maximize your retirement income while minimizing taxes and penalties.