Quick overview

Required Minimum Distributions (RMDs) force the yearly withdrawal of a minimum amount from certain tax-deferred retirement accounts so those funds don’t remain untaxed forever. The rules determine when withdrawals must start, how to calculate the amount, who is exempt, and the penalties for missing required distributions. This practical guide explains the rules, common exceptions, calculation basics, correction steps, and tax-smart strategies I use for clients.

Sources and further reading: the IRS maintains detailed guidance on RMDs (see: https://www.irs.gov/retirement-plans/required-minimum-distributions).

Why RMDs matter

RMDs directly affect taxable income in retirement and can push you into higher tax brackets or affect Medicare premiums (IRMAA). They also influence estate planning choices. Two practical consequences I frequently see in practice:

  • A single late or missed RMD can trigger an excise tax and unexpected tax filings. SECURE 2.0 reduced the penalty for missed RMDs, but you still need to act quickly to limit costs (see IRS guidance).
  • RMD-driven income can increase Medicare Part B/D IRMAA surcharges and taxation of Social Security benefits. Coordinating distributions across account types reduces surprises.

Who must take RMDs (and who doesn’t)

  • Accounts generally subject to RMDs: Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k), 403(b), profit-sharing plans, and similar employer plans. (IRS: Required Minimum Distributions).

  • Accounts generally exempt from lifetime RMDs: Roth IRAs (owner’s lifetime). Note: Roth 401(k)s are subject to RMDs unless rolled to a Roth IRA.

  • Beneficiaries: Inherited IRAs and inherited employer plan accounts have their own RMD rules. The SECURE Act (2019) introduced a 10-year rule for most non-eligible designated beneficiaries; eligible designated beneficiaries (spouses, disabled individuals, chronically ill individuals, certain minor children) may use other options. These changes are important for estate planning and are addressed by the IRS.

When must you start taking RMDs?

  • The RMD starting age is based on federal law that changed in recent years. The SECURE Act (2019) moved the age to 72 for many. SECURE Act 2.0 raised the age to 73 starting in 2023 for those who attain age 72 after Dec. 31, 2022, with a later increase to 75 scheduled for future years. Always confirm your situation with current IRS guidance or a financial advisor, because the effective starting age depends on your birth year and the law’s phase-in schedule.

  • Timing: Your first RMD may be delayed until April 1 of the year after you reach the required beginning age, but that “delay” means you must take two distributions in one year if you wait — which can increase taxable income for that tax year. After the first RMD, subsequent RMDs must be taken by December 31 each year.

Reference: IRS RMD rules (https://www.irs.gov/retirement-plans/required-minimum-distributions).

How RMDs are calculated (step-by-step)

  1. Determine the account balance: Use the fair market value of each retirement account as of December 31 of the prior year (the value the IRS requires for calculation).

  2. Locate the appropriate life-expectancy divisor: The IRS provides distribution period tables — the Uniform Lifetime Table, the Joint Life and Last Survivor Table (for certain beneficiaries), and a Single Life Table in some cases.

  3. Divide the account balance by the IRS divisor: RMD = prior-year year-end account balance ÷ distribution period.

Example (illustrative): If your IRA balance on Dec. 31 was $300,000 and the IRS table gives a distribution period of 30.0 for your age, the RMD is $300,000 ÷ 30.0 = $10,000. Use the current IRS tables for precise divisors — the example above is illustrative only. (IRS: Required Minimum Distributions).

Notes and nuances:

  • IRA aggregation rule: If you own multiple IRAs, you calculate each RMD separately but you can withdraw the total RMD from any one or more of your IRAs. You generally may not aggregate RMDs across IRAs and employer plans (401(k)s usually require separate RMDs unless rolled into an IRA).
  • Employer plans: If you still work past the RMD age and are a non-5% owner, you may be able to delay RMDs from your current employer plan until you retire — but RMDs for IRAs still apply.

Common exceptions and special rules

  • Roth IRAs: No lifetime RMDs for owners. Roth 401(k) accounts are subject to RMDs unless rolled to a Roth IRA.

  • Inherited accounts: The rules for beneficiaries changed under the SECURE Act. Most beneficiaries must fully distribute inherited accounts within 10 years, while certain “eligible designated beneficiaries” have more flexibility, including life-expectancy-based withdrawals.

  • Spousal beneficiaries: A spouse who inherits an IRA has special options — treat it as their own (and delay RMDs), roll it over, or remain a beneficiary and use the spousal life-expectancy rules. The right choice depends on age, tax planning, and other assets.

  • Qualified Charitable Distributions (QCDs): Up to $100,000 per year in direct transfers from an IRA to qualified charities may exclude the donated amount from taxable income and can count toward your RMD for the year. QCDs have IRS rules about eligible account types and charitable recipients — confirm current limits and rules with IRS guidance on QCDs.

Penalties for missing an RMD and how to fix it

  • The excise tax for failing to take an RMD used to be 50% of the missed amount. SECURE Act 2.0 lowered the penalty to 25% and to 10% if you correct the mistake within a specified correction window (the IRS provides procedural guidance). Because penalty rules have changed, follow the current IRS instructions and consider requesting abatement under the “reasonable error” relief process.

How to correct a missed RMD (practical steps I use with clients):

  1. Withdraw the missed amount as soon as possible.
  2. Report the missed RMD on Form 5329 when you file taxes and indicate correction; follow the IRS instructions to request reduction of the excise tax where permitted.
  3. Prepare a written explanation of reasonable error and steps taken to remedy the failure; attach it to Form 5329 per IRS guidance.
  4. If the IRA custodian made an administrative error, request corrected reporting and consider asking the custodian to assist with abatement documentation.

Reference: IRS excise tax guidance (see the RMD IRS page and current IRS instructions for Form 5329).

Tax and planning strategies I recommend

  1. Plan earlier: Build expected RMD amounts into your retirement income plan several years before hitting the starting age. That reduces tax surprises.

  2. Roth conversions: Converting some Traditional IRA dollars to a Roth IRA before RMD age reduces future taxable RMDs. Timing and tax cost matter — partial conversions spread over years can be efficient.

  3. Use QCDs if charitable: If you routinely give to charity, a QCD can satisfy an RMD without increasing taxable income. Make sure the transfer is a direct trustee-to-charity distribution and the charity is eligible.

  4. Coordinate account withdrawals: If possible, use taxable accounts for small living expenses before drawing RMDs to manage tax brackets.

  5. Manage timing: Taking your first RMD by Dec. 31 (instead of delaying to April 1 of the next year) can simplify tax planning by avoiding two RMDs in one tax year.

  6. Consider Roth rollovers for employer plans: Rolling a Roth 401(k) to a Roth IRA removes RMD obligations from that account type in the owner’s lifetime.

Internal resources: read more on practical steps in “How Required Minimum Distributions (RMDs) Work in Practice” and consider “Qualified Charitable Distributions (QCDs)” for charity-focused strategies.

Real-world scenarios (short case studies)

Case A — Avoiding double RMD year: Mary turned the RMD age in 2024 and delayed her first RMD until April 1, 2025. She had to take another RMD by Dec. 31, 2025, which pushed more income into 2025 and increased Medicare IRMAA surcharges. In planning with Mary, we recalculated whether taking the first RMD in 2024 would have yielded a lower total tax bill across the two-year span — it often does.

Case B — Charity and taxes: A client with generous charitable habits used a $50,000 QCD to satisfy that year’s RMD. The client spared themselves the taxable income while still supporting their favorite nonprofits — a clean, effective strategy when properly executed.

Case C — Missed RMD corrected: A client missed an RMD because of a custodian reporting error. We withdrew the missed amount, filed Form 5329 with an explanation, and documented the steps. The IRS reduced the excise tax under the reasonable error relief and the SECURE 2.0 penalty provisions, limiting the client’s cost.

Practical checklist before RMD season

  • Confirm your RMD starting year and first-year deadline based on your birthdate and current law.
  • Gather Dec. 31 account statements for all subject accounts.
  • Use the IRS tables to compute each account’s RMD, or ask your custodian for the calculated amount.
  • Decide whether to use withdrawals, QCDs, or Roth conversions to manage taxes.
  • Set withholding preferences and prepare for tax reporting (Form 1099-R will reflect distributions).

Final notes and professional disclaimer

RMD rules are technical and have changed recently. This article summarizes the basics, common exceptions, and practical steps to reduce tax and avoid penalties. In my practice, early coordination between tax, Social Security, and retirement distributions produces the best outcomes — don’t wait until a missed RMD forces rushed decisions.

This content is educational and does not replace personalized advice. Consult a qualified tax professional or financial advisor for guidance tailored to your circumstances.

Authoritative sources