Managing Required Minimum Distributions (RMDs) for Small Balances

Why small RMD balances still matter

Small retirement-account balances often feel trivial — but RMD rules don’t have a dollar minimum. If you’re subject to RMDs and you miss or under-withdraw the required amount, the IRS can impose an excise tax (reduced by recent law changes but still material). Even modest RMDs can affect your taxable income, Medicare premiums, and state tax liabilities, so a simple plan prevents surprises.

Quick legal update (current as of 2025)

• The typical RMD starting age is 73 for most people in 2025 (older taxpayers who reached the prior starting age before the change may still have different rules). Check the IRS for your birth-year rules: https://www.irs.gov/retirement-plans/required-minimum-distributions. (IRS)
• The excise tax for missed RMDs was lowered under federal law changes; the penalty can be reduced if you correct a missed RMD promptly. Confirm current penalty guidance with the IRS if you miss a distribution. (IRS)

Sources: IRS Required Minimum Distributions page and Publication 590-B.

How RMDs are calculated (practical explanation)

RMDs are calculated separately for each tax-deferred account using this basic formula:

RMD = December 31 account balance from the prior year ÷ IRS distribution period (life expectancy divisor)

• The balance used is the prior calendar-year ending balance reported on your statement.
• The divisor (distribution period) comes from IRS life-expectancy tables (Uniform Lifetime Table, Joint Life Table, or Single Life Table) and depends on your age and circumstances.
• If you have multiple IRAs, you may aggregate the RMDs and withdraw from any one or more IRAs to satisfy the total; employer plans (like 401(k)s) generally require separate RMDs per plan unless rolled into an IRA.

This simple approach keeps the math manageable for small balances.

Real-world example (illustrative)

Suppose your Traditional IRA was $18,000 on December 31 last year, and for your age the IRS divisor is about 25 (the actual divisor varies by exact age and table). Your RMD would be approximately $18,000 ÷ 25 = $720. That $720 is taxable income and must be withdrawn before the RMD deadline.

Note: Use your exact divisor from IRS tables or your plan provider’s RMD calculator for a precise number.

Practical strategies for managing small RMDs

1. Consolidate small accounts where it makes sense

• Rolling small 401(k)s into a single IRA can simplify administration and allow you to aggregate RMDs. See our guide on consolidation strategies: “Consolidation Strategies for Multiple Retirement Accounts.” (internal link below)
• If plan rules allow, consolidating small employer accounts into an IRA removes the need to track multiple plan-level RMDs.

1. Rollovers and timing

• If you’re still working and have a small balance in a former employer’s plan, rolling it into your IRA before RMDs begin can simplify future RMDs.
• Beware of plan-specific rules and potential mandatory cash-outs for very small plan balances — check your plan’s summary plan description.

1. Coordinate distribution timing

• Taking a small RMD early in the year reduces the risk of missing it and gives you time to correct mistakes before filing taxes.
• If you have multiple accounts, you may withdraw the combined RMD from a single IRA to avoid multiple small transactions.

1. Consider Roth conversions — cautiously

• Converting small amounts to a Roth IRA reduces future RMDs (Roth IRAs are not subject to RMDs during the original owner’s lifetime).
• Conversions are taxable in the year of the conversion and can affect Medicare Part B/D IRMAA and taxable income. Work with a tax professional to weigh current-year taxes versus future RMD benefits. See our related resource on Roth timing and Medicare effects. (internal link below)

1. Use charitable options if eligible

• If you are eligible for a qualified charitable distribution (QCD), you can direct up to the annual QCD limit from an IRA directly to a qualified charity to satisfy part or all of your RMD without recognizing it as taxable income. Confirm current QCD age and rules with the IRS and your advisor.

1. Keep records and confirm with your plan custodian

• Save account statements and receipts for RMD withdrawals. If you correct a missed RMD quickly, you may qualify for a reduced excise tax — you’ll need documentation.

Consolidation caveats and plan rules

• Employer plan rules differ: some 401(k) plans permit rollovers, others don’t, and some plans may automatically cash out small balances. Review the plan’s notice(s) and speak to the plan administrator.
• When consolidating, check investment options, fees, and creditor protections (ERISA-qualified 401(k)s have stronger creditor protections than IRAs in certain circumstances).
• For guidance on consolidation and portability, see our article “Consolidation Strategies for Multiple Retirement Accounts.” (internal link)

Common mistakes with small RMDs (and how to avoid them)

• Assuming “it’s too small to matter.” Any unpaid RMD can attract penalties and complicate tax returns.
• Forgetting employer-plan RMD rules. You might be able to aggregate IRAs but not 401(k)s — check each plan.
• Incorrect age assumption. RMD starting age rules changed recently; verify the correct start age for your birth year.
• Late or insufficient withdrawals. Take RMDs early and confirm the custodian posts the distribution in the correct tax year.

Short checklist to manage small RMDs (actionable)

• Confirm your RMD starting age based on birth year (IRS site).
• Pull prior-year 12/31 statements for each plan subject to RMDs.
• Decide whether to consolidate small accounts into one IRA (check fees and protections).
• Calculate each account’s RMD using IRS divisors or use your custodian’s calculator.
• Take the withdrawal(s) and save confirmation; update tax estimates for the year.
• If you miss an RMD, contact your custodian and advisor immediately to correct and document the cure.

Frequently asked questions (short answers)

• When do RMDs start? Generally by April 1 of the year after you reach the applicable starting age (73 for most taxpayers in 2025). Check IRS guidance for your birth-year specifics. (IRS)
• Can I combine RMDs from multiple IRAs? Yes — you can aggregate IRA RMDs and take the total from one or more IRAs. Employer plans are different. See our article on managing RMDs across accounts. (internal link)
• What if I miss an RMD? The excise tax used to be 50% but has been reduced under recent statutory changes; timely corrections can lower the penalty. Contact your tax advisor immediately.

When to call a professional

If you’re evaluating conversions, charitable options, planning to consolidate multiple small accounts, or need help correcting missed RMDs, consult a CPA or an ERISA/retirement-plan professional. In my practice, small balances commonly create outsized paperwork problems in the final filing stages of the year; proactive consolidation and early withdrawals reduce errors.

Internal resources

• Required Minimum Distribution (RMD): https://finhelp.io/glossary/required-minimum-distribution-rmd/
• Consolidation Strategies for Multiple Retirement Accounts: https://finhelp.io/glossary/consolidation-strategies-for-multiple-retirement-accounts/
• Managing Retirement Required Minimum Distributions Across Accounts: https://finhelp.io/glossary/managing-retirement-required-minimum-distributions-across-accounts/

Reliable external sources

• IRS — Required Minimum Distributions (RMD): https://www.irs.gov/retirement-plans/required-minimum-distributions
• IRS Publication 590-B — Distributions from Individual Retirement Arrangements (IRAs): https://www.irs.gov/publications/p590b
• Consumer Financial Protection Bureau — Retirement resources and calculators: https://www.consumerfinance.gov/consumer-tools/retirement/

Professional disclaimer: This article is educational and does not constitute individualized tax or investment advice. Laws and IRS guidance change; consult a qualified tax professional or plan administrator for decisions that affect your situation.