The Basics of Required Minimum Distributions (RMDs): A Guide for Retirees

If you spent decades saving in a traditional IRA, 401(k), or 403(b), the government made you a deal: skip the tax on the way in, and we will collect on the way out. Required Minimum Distributions (RMDs) are how the IRS collects. Once you reach the required starting age, you must withdraw a minimum amount from those accounts every year — and pay ordinary income tax on every dollar — whether you need the money or not.

For retirees in Oakland County, Ann Arbor, Armada, and Allen Park, MI, understanding the basics of RMDs is not optional. Miss a distribution and you face one of the steepest penalties in the tax code. Ignore the planning window before they begin and you may spend the rest of your retirement paying more tax than necessary. This guide covers everything you need to know.

What are RMDs and why do they exist?

A Required Minimum Distribution is the smallest amount the IRS requires you to withdraw each year from a tax-deferred retirement account once you reach RMD age. The policy exists because Congress gave savers a significant benefit when they contributed: no income tax on those dollars in the year earned. In exchange, the government requires that withdrawals — and the taxes owed on them — eventually begin. RMDs are the mechanism that enforces that promise.

Every dollar you withdraw as an RMD is taxed as ordinary income in the year you take it, stacking on top of Social Security, any pension, and other income you already receive. Because of that stacking effect, RMDs can quietly push retirees into higher federal tax brackets, trigger Medicare premium surcharges, and cause more of their Social Security to become taxable — all at once. That is why planning for RMDs years before they begin matters far more than most retirees realize.

When do RMDs start? The SECURE 2.0 Act starting age

For many years, the RMD starting age was 70½, then 72 under the original SECURE Act. The SECURE 2.0 Act raised it again. Under current law, the starting age for RMDs is:

• Age 73 — for individuals who turn age 72 after December 31, 2022 (born after December 31, 1950, and before January 1, 1960).
• Age 75 — for individuals born on or after January 1, 1960.

In practical terms: if you were born between 1951 and 1959, your RMDs begin at 73. If you were born in 1960 or later, they begin at 75. If you were already taking RMDs before the law changed, your schedule was not affected.

You have one option to delay your first RMD: you may defer it until April 1 of the year following the year you reach your RMD age. However, this creates a trap — you will be required to take two RMDs in that second year (the delayed first one and the regular annual one), which doubles the taxable income in a single tax return. In most cases, taking your first RMD in the actual year you reach RMD age is the more tax-efficient approach.

How is an RMD calculated?

The formula is straightforward:

RMD = Account Balance (December 31, prior year) ÷ IRS Life-Expectancy Factor

The IRS life-expectancy factor comes from the Uniform Lifetime Table (Publication 590-B), which is updated periodically. The factor represents how many more years the IRS actuarially expects you to live. As you age, the factor decreases, meaning a larger percentage of your balance is required each year. A separate table — the Joint Life and Last Survivor Table — applies if your sole beneficiary is a spouse who is more than 10 years younger than you, and it uses a longer life expectancy, resulting in smaller annual RMDs.

If you own multiple traditional IRAs, you calculate each account’s RMD separately, but you can take the combined total from any one (or combination) of them. 401(k) and 403(b) RMDs, by contrast, must be taken separately from each individual employer plan account.

Which accounts are subject to RMDs?

RMDs apply to virtually every type of tax-deferred retirement account:

• Traditional IRAs (including rollover IRAs, SEP IRAs, and SIMPLE IRAs)
• 401(k) plans (including traditional pre-tax 401(k) accounts)
• 403(b) plans (common for educators, healthcare workers, and nonprofit employees)
• 457(b) plans (common for government and some nonprofit employees)

Roth IRAs are a critical exception: they do not require lifetime RMDs for the original owner. Because Roth contributions are made with after-tax dollars and grow tax-free, the IRS has no deferred tax to collect — so no mandatory distribution applies during your lifetime.

Under the SECURE 2.0 Act, designated Roth accounts in employer plans — such as Roth 401(k)s and Roth 403(b)s — are also now exempt from lifetime RMDs, beginning in 2024. Previously, Roth 401(k)s were subject to RMDs despite being funded with after-tax dollars. This change brings them in line with Roth IRA treatment and makes Roth employer accounts even more valuable as long-term planning vehicles.

What is the penalty for missing an RMD?

Failing to take your full RMD triggers a federal excise tax — one of the most severe penalties in the retirement tax code. Under the SECURE 2.0 Act:

• The standard penalty is 25% of the amount you should have withdrawn but did not.
• The penalty is reduced to 10% if you correct the shortfall within a two-year window and demonstrate reasonable cause to the IRS.

Before the SECURE 2.0 Act, this penalty was 50% — so the law did reduce the financial harm of a missed distribution. But a 25% penalty on an undistributed amount is still enormous, and there is no reason to pay it. Most custodians allow you to set up automatic annual distributions to ensure the requirement is met every December.

How RMDs can raise your tax bill in three ways

The RMD withdrawal itself is rarely the only cost. For Michigan retirees with substantial pre-tax savings, the cascading effects of RMD income can be significant:

1. Higher federal and state income tax brackets. RMD income stacks on top of Social Security, pension distributions, and any other income. Michigan taxes most retirement income, though subtractions and exemptions vary by birth year and income type under current state law.
2. Medicare IRMAA surcharges. Medicare sets Part B and Part D premium surcharges based on your modified adjusted gross income (MAGI) from two years prior. A large RMD today can raise your Medicare premiums in two years. IRMAA is structured as a cliff — one dollar over a threshold bumps your entire premium tier for the year.
3. Increased taxation of Social Security benefits. When your combined income exceeds certain thresholds ($25,000 for single filers; $32,000 for married couples filing jointly), up to 85% of your Social Security benefit can become taxable. An RMD that pushes you over those thresholds effectively adds a second layer of tax on the same dollars.

Tax-planning strategies to manage RMD impact

Roth Conversions

A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA. You pay ordinary income tax on the converted amount in the year of the transfer, but the assets then grow tax-free and are not subject to lifetime RMDs. The most effective time to run Roth conversions is during the “tax valley” — the lower-income years between your retirement date and the year you reach RMD age. Each dollar converted before RMDs begin is a dollar that will never be forced out as a taxable distribution. Our Roth conversion strategy guide covers the mechanics and trade-offs in detail.

Roth conversions are permanent under current tax law — they cannot be reversed. The amount converted is taxable income in the year of the conversion, and care must be taken to avoid pushing your income over Medicare IRMAA thresholds. Always consult a qualified tax professional before executing a conversion.

Qualified Charitable Distributions (QCDs)

If you are age 70½ or older and charitably inclined, a Qualified Charitable Distribution is one of the most tax-efficient moves available. A QCD allows you to transfer money directly from your IRA to a qualified charity. The amount transferred:

• Satisfies all or part of your annual RMD requirement.
• Is excluded from your taxable income entirely (unlike a regular withdrawal followed by a charitable deduction).
• Is subject to an annual limit of approximately $108,000 per person (indexed for inflation; the 2026 limit is approximately $111,000).

Because the QCD amount is excluded from adjusted gross income — not just deducted from it — it does not affect the thresholds that determine Medicare IRMAA surcharges or Social Security taxation. For charitably inclined retirees, it is often the most effective dollar-for-dollar way to satisfy an RMD while minimizing taxes.

Ready to build your RMD plan?

Required Minimum Distributions are one of the most plannable features of the tax code — they are predictable, scheduled, and completely manageable with the right strategy in place. The retirees who pay the least tax on their RMDs rarely do anything extraordinary at age 73. They did the disciplined work in the years before: Roth conversions during low-income windows, QCDs where appropriate, and a written retirement income plan that mapped out the tax impact year by year.

At Panic Proof Retirement™, we specialize in Retirement Income Planning and Tax Planning & Roth Conversion Strategies for retirees and pre-retirees across Oakland County, Ann Arbor, Armada, and Allen Park, MI. Whether you are still years away from your first RMD or already managing them, we can help you design a personalized plan to reduce their tax impact and protect your retirement income.

Schedule a free Retirement Check-Up — a 30-to-60-minute, no-cost, no-obligation conversation. We will review your retirement accounts, model your projected RMDs, and help you evaluate whether a Roth conversion or QCD strategy makes sense for your situation.

Important: Panic Proof Retirement™ is a licensed insurance agency. This article is for educational purposes only and is not individualized tax, legal, or investment advice. Tax laws, IRS limits, and RMD rules change regularly; the figures and rules cited here reflect current 2026 law and are subject to change. Always consult a qualified tax professional or CPA before acting on any strategy discussed here.