Required Minimum Distribution (RMD)

Required Minimum Distributions are a tax-collection mechanism: the IRS gave you a deduction when you contributed to traditional retirement accounts, and eventually it wants to be paid. Starting at age 73 (under the SECURE 2.0 Act, rising to 75 for those born after 1959), you must withdraw a minimum amount each year, calculated as your prior-year-end balance divided by an IRS life-expectancy factor.

The first RMD can be delayed until April 1 of the year following your RMD start year. Every subsequent RMD must be taken by December 31. Missing an RMD triggers a 25% excise tax (recently reduced from 50%) on the amount you should have withdrawn.

RMDs apply to traditional IRAs, SEP and SIMPLE IRAs, 401(k)s, 403(b)s, and most other tax-deferred qualified plans. Roth IRAs have no RMDs for the original owner. Roth 401(k)s no longer have RMDs for the original owner as of 2024 under SECURE 2.0.

The strategic implication of RMDs is that they force taxable income later in life — often at the exact moment when other income sources (pensions, Social Security) are also active. That stacking can push you into higher tax brackets, trigger Medicare IRMAA surcharges, and make more of your Social Security taxable. Planning ahead — through Roth conversions in the low-income years between retirement and age 73 — is usually the single highest-leverage move to reduce lifetime RMD taxation.

Retirees with charitable intent should also consider Qualified Charitable Distributions (QCDs), which allow you to satisfy an RMD by donating directly from the IRA to a qualified charity. The distribution does not count as taxable income — arguably the best-kept retirement tax break in the code.