Required Minimum Distributions (RMDs): Rules, Strategies, and Common Mistakes

What Are RMDs and Why Do They Exist?

Required Minimum Distributions (RMDs) are the minimum amounts that you must withdraw from your tax-deferred retirement accounts each year once you reach a certain age. The accounts subject to RMDs include Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and most other employer-sponsored retirement plans.

The reason RMDs exist is straightforward: when you contribute to a tax-deferred account, you receive a tax deduction or exclusion on the money going in. The government defers the tax — it does not forgive it. RMDs ensure that the IRS eventually collects income tax on those contributions and their earnings, rather than allowing the money to grow tax-deferred indefinitely and potentially be passed to heirs without ever being taxed as income.

Roth IRAs are notably exempt from RMDs during the original owner's lifetime. Because Roth contributions are made with after-tax dollars, there is no deferred tax for the IRS to recapture. This is one of the key advantages of Roth accounts and a primary reason Roth conversions are such a powerful planning tool.

When Do RMDs Begin?

Under the SECURE 2.0 Act, RMDs now begin at age 73. Your first RMD must be taken by April 1 of the year following the year you turn 73. All subsequent RMDs must be taken by December 31 of each year.

There is an important trap in that first-year timing. If you delay your first RMD to April 1 of the following year, you will still need to take your second RMD by December 31 of that same year. This means two RMDs in a single calendar year, which could push you into a significantly higher tax bracket. For most people, taking the first RMD in the year they turn 73 — rather than delaying to the following April — is the better strategy.

How to Calculate Your RMD

The RMD calculation is straightforward. You take your account balance as of December 31 of the prior year and divide it by the distribution period (life expectancy factor) from the IRS Uniform Lifetime Table. The result is the minimum amount you must withdraw for the current year.

Formula: RMD = Prior Year-End Account Balance ÷ Life Expectancy Factor

If you have multiple Traditional IRAs, you must calculate the RMD for each one separately, but you can take the total required amount from any one or combination of your IRAs. However, 401(k) RMDs must be taken separately from each 401(k) account — they cannot be aggregated across plans or satisfied from IRA withdrawals.

Uniform Lifetime Table (Selected Ages)

The following table shows the IRS life expectancy factors used for most RMD calculations. If your spouse is more than 10 years younger and is your sole beneficiary, a separate Joint Life and Last Survivor Table provides a longer distribution period.

Example RMD Calculations

To illustrate how RMDs grow over time, consider a retiree with a $500,000 Traditional IRA balance at different ages. This example assumes no additional growth for simplicity — in practice, continued investment growth often means RMD amounts increase even as the balance is drawn down.

As the table shows, the same $500,000 balance requires increasingly larger distributions as you age. At 73, the RMD is approximately $18,900. By age 85, it rises to $31,250 — a 66% increase. When you factor in investment growth, the actual distributions can be substantially larger, which is why proactive planning before RMDs begin is so valuable.

Penalties for Missing RMDs

The penalty for failing to take your full RMD is severe. Under SECURE 2.0, the excise tax on the amount not distributed is 25% of the shortfall. However, if you correct the error within two years by withdrawing the missed amount, the penalty is reduced to 10%.

For example, if your RMD is $20,000 and you fail to withdraw any of it, you would owe a $5,000 penalty (25%). If you correct the mistake within two years, the penalty drops to $2,000 (10%). While these rates are lower than the previous 50% penalty, they still represent a significant and entirely avoidable cost.

Strategies to Minimize the RMD Tax Burden

Roth conversions before age 73. The most powerful RMD strategy is reducing the balance subject to RMDs before they begin. By converting Traditional IRA assets to a Roth IRA during lower-income years — particularly between retirement and age 73 — you pay tax at today's rate and permanently remove those assets from future RMD calculations. Every dollar converted to a Roth is a dollar that will never generate a mandatory taxable distribution.

Strategic timing of distributions. You do not have to take your entire RMD in a single lump sum. Spreading distributions across the calendar year through monthly or quarterly withdrawals can help manage your cash flow and avoid pushing yourself into a higher bracket in a single month. Some retirees also time their RMD to coincide with anticipated expenses or to manage estimated tax payments.

Consider the tax bracket impact. Your RMD adds to your taxable income, which can trigger cascading effects: higher taxes on Social Security benefits, increased Medicare IRMAA premiums, and the loss of other income-based deductions or credits. Planning your withdrawal amounts with an eye toward these thresholds can save thousands annually.

Common RMD Mistakes

Forgetting inherited IRAs. Many people inherit IRAs from parents or other relatives and do not realize that these accounts have their own separate RMD requirements. An inherited IRA's RMD cannot be satisfied by withdrawals from your own IRA, and the rules for inherited accounts differ depending on when the original owner passed away.

Missing the first-year deadline. Your first RMD has a special extended deadline of April 1 of the year after you turn 73. Many retirees misunderstand this as meaning they can skip the first year entirely. In reality, delaying simply bunches two years of RMDs into one tax year, potentially creating a much larger tax bill.

Not aggregating IRA balances correctly. While you must calculate the RMD for each Traditional IRA separately, you can withdraw the total amount from any one or combination of your Traditional IRAs. However, you cannot use IRA withdrawals to satisfy 401(k) RMDs or vice versa. Failing to properly aggregate or separate these calculations is a common and costly error.

Forgetting that account growth increases RMDs. Many retirees are surprised when their RMD amount increases each year, even though they are withdrawing money. If your investment returns exceed your distributions, your balance grows, and next year's RMD will be larger. This is particularly relevant during strong bull markets.

The bottom line is that RMDs are not just a compliance requirement — they are a central component of your retirement income and tax strategy. Proactive planning, particularly in the years leading up to age 73, can save you substantial amounts in taxes over the course of your retirement.

This article is for informational purposes only and does not constitute tax or investment advice. RMD rules are complex and subject to change. All information should be discussed with a qualified financial advisor before implementation.