Required Minimum Distributions (RMDs) are mandatory annual withdrawals from tax-deferred accounts starting at age 73. The IRS requires you to withdraw a minimum percentage that increases each year as you age. Failure to comply triggers a 25% excise tax on the shortfall.
Required Minimum Distributions are mandatory annual withdrawals from tax-deferred retirement accounts — Traditional IRAs, 401(k)s, 403(b)s, and similar plans — that the IRS requires beginning at age 73. The government deferred taxes on these contributions and their growth; RMDs ensure that tax is eventually collected. The required amount increases each year, calculated by dividing the account balance by a life expectancy factor.
How It Works
Each year after reaching RMD age, you must withdraw at least:
RMD = Account Balance (Dec 31 of prior year) / IRS Life Expectancy Factor
| Age | Life Expectancy Factor | Approximate RMD % |
|---|---|---|
| 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% |
Key rules:
- Applies to: Traditional IRAs, 401(k)s, 403(b)s, 457 plans. Does NOT apply to Roth IRAs during the owner's lifetime.
- Deadline: December 31 each year (first-year RMD can be delayed to April 1 of the following year, but then two RMDs fall in the same tax year)
- Penalty for missing: 25% excise tax on the amount not withdrawn (reduced from 50% by SECURE 2.0)
- You can always withdraw more: RMDs are a minimum, not a maximum
The percentage starts modest (~3.8%) but accelerates. By age 90, over 8% of the balance must be withdrawn annually — potentially pushing retirees into higher tax brackets even if they don't need the income.
Why It Matters for Retirement Planning
RMDs create several planning challenges:
- Tax bracket management: Large tax-deferred balances generate large RMDs that can push retirees into higher brackets, increase Medicare premiums (IRMAA surcharges), and trigger taxation of Social Security benefits
- Forced income: RMDs may exceed actual spending needs, creating excess taxable income
- Roth conversion opportunity: Converting tax-deferred funds to Roth before RMDs begin — especially during low-income early retirement years — reduces future RMD obligations and their tax impact
- Withdrawal order planning: Strategic withdrawals before age 73 can reduce the tax-deferred balance and future RMDs
A Practical Example
A retiree reaches age 73 with $1,200,000 in a Traditional IRA. They only need $36,000/year beyond Social Security:
| Age | IRA Balance | RMD Required | Actually Needs | Excess Taxable Income |
|---|---|---|---|---|
| 73 | $1,200,000 | $45,283 | $36,000 | $9,283 |
| 80 | $1,050,000 | $51,980 | $36,000 | $15,980 |
| 85 | $850,000 | $53,125 | $36,000 | $17,125 |
By age 85, over $17,000/year is withdrawn and taxed above what the retiree actually needs. Had they done Roth conversions in their 60s — converting $40,000/year during low-income years before Social Security — the Traditional IRA balance would be smaller, the RMDs more manageable, and the converted Roth funds would grow and be withdrawn tax-free.
Frequently Asked Questions
- At what age do RMDs start?
- As of the SECURE 2.0 Act (2023), RMDs begin at age 73 for most Americans. This will increase to age 75 starting in 2033. Roth IRAs are exempt from RMDs during the owner's lifetime, but inherited Roth IRAs may be subject to distribution rules.
- How are RMDs calculated?
- Divide the December 31 balance of your tax-deferred accounts by the IRS Uniform Lifetime Table factor for your age. For example, at age 73 the factor is 26.5, so a $1,000,000 balance requires a minimum withdrawal of $37,736. The factor decreases each year, meaning the required percentage increases as you age.
- What happens if you miss an RMD?
- The penalty for missing an RMD was reduced from 50% to 25% by the SECURE 2.0 Act, and can be further reduced to 10% if corrected promptly. This is still a significant penalty — on a $40,000 RMD, the 25% penalty would be $10,000. Setting up automatic withdrawals helps avoid this costly mistake.