Required Minimum Distributions (RMDs) Explained

What Are RMDs?

Required Minimum Distributions are mandatory annual withdrawals from traditional IRAs, 401(k)s, 403(b)s, and other tax-deferred retirement accounts. They begin at age 73 (as of the SECURE 2.0 Act). Roth IRAs are exempt from RMDs during the owner's lifetime.

How RMDs Are Calculated

Your RMD is calculated by dividing your account balance (as of December 31 of the prior year) by a life expectancy factor from IRS tables. For example, at age 73, the factor is approximately 26.5. If your account balance is $500,000, your RMD would be about $18,868.

The RMD percentage increases each year as your life expectancy factor decreases. By age 80, you're withdrawing roughly 5% per year. By 90, it's about 8.8%.

The Penalty for Missing an RMD

The penalty for failing to take your RMD is 25% of the amount you should have withdrawn (reduced from the old 50% penalty). If corrected within 2 years, the penalty drops to 10%. We help clients set up automatic RMD schedules to avoid this entirely.

Strategies to Reduce RMD Tax Impact

Roth conversions before age 73 can reduce future RMDs by moving money to a Roth IRA (which has no RMDs). Qualified Charitable Distributions (QCDs) allow you to donate up to $105,000 per year directly from your IRA to charity, satisfying your RMD without adding to taxable income.