Required Minimum Distributions

You've spent decades building your retirement accounts — 401(k)s, traditional IRAs, SEP IRAs. The money has grown tax-deferred for years. Now the IRS wants its share. Required Minimum Distributions (RMDs) are mandatory annual withdrawals from pre-tax retirement accounts that begin at age 73 (under the SECURE 2.0 Act). You don't get to choose. The IRS will tell you how much to take out, and if you don't, the penalty is severe: 25% of the amount you should have withdrawn.

How RMDs Work

Starting in the year you turn 73, you must withdraw a minimum amount from each traditional IRA, 401(k), 403(b), SEP IRA, and SIMPLE IRA you own. (Roth IRAs do not have RMDs during the owner's lifetime — one of their biggest advantages.)

Your RMD is calculated by dividing your account balance as of December 31 of the prior year by a life expectancy factor from the IRS Uniform Lifetime Table. The table changes with age — as you get older, the distribution period gets shorter, and the percentage you must withdraw gets larger.

Example: You're 73 years old with a $500,000 traditional IRA. The Uniform Lifetime Table gives a distribution period of 26.5 years. Your RMD is $500,000 / 26.5 = $18,868. That amount is added to your taxable income.

At age 80, the distribution period drops to about 20.2 years. Same $500,000 balance means an RMD of $24,752. At 85, it's about $31,250. At 90, it's about $39,000. The percentages get larger every year.

Why RMDs Are a Problem

RMDs aren't just an inconvenience — they can create real tax problems.

They push you into higher brackets. If you have $1.5 million in traditional IRAs, your RMD at 73 is about $56,600. Add Social Security ($35,000), and your income is $91,600 — potentially in the 22% bracket. Without planning, large RMDs can push you into the 24% or even 32% bracket.

They increase Medicare premiums. Medicare Part B and Part D premiums are income-based. High-income retirees pay surcharges called IRMAA (Income-Related Monthly Adjustment Amounts). RMDs that push your modified adjusted gross income above $103,000 (single) or $206,000 (married) trigger higher premiums — sometimes hundreds of extra dollars per month.

They make Social Security taxable. Up to 85% of your Social Security benefits can be taxed if your "combined income" exceeds certain thresholds. RMDs increase combined income, which can make more of your Social Security subject to tax.

They compound the problem. If your remaining balance continues to grow (because you're withdrawing less than the account earns), your RMDs get larger every year, pushing you into progressively higher tax situations.

Strategies to Minimize RMDs

Roth conversions before 73. The most powerful strategy. Convert portions of your traditional IRA to a Roth IRA during your 60s and early 70s, when your income may be lower. You pay tax on the conversion now, but the money moves to a Roth where there are no RMDs and no future tax.

Qualified Charitable Distributions (QCDs). If you're 70 1/2 or older and donate to charity, you can send up to $105,000 per year (2025) directly from your IRA to a qualified charity. The QCD counts as your RMD but isn't included in your taxable income. This is one of the most tax-efficient ways to donate.

Roth 401(k) contributions during your career. Every dollar that goes into a Roth 401(k) instead of a traditional 401(k) is a dollar that won't generate RMDs. Starting early with Roth contributions reduces the problem decades later.

Delay the first RMD. You can delay your first RMD until April 1 of the year after you turn 73. But be careful — this means you'll have two RMDs in the same year (the delayed first one plus the current year's), which could create a tax spike.

Important Details

Multiple accounts: If you have multiple traditional IRAs, you calculate the RMD for each separately but can take the total from any one (or combination) of them. 401(k)s are different — each 401(k) RMD must be taken from that specific account.

Still working exception: If you're still employed and participating in your current employer's 401(k), you can delay RMDs from that specific plan until you actually retire. This doesn't apply to IRAs or old 401(k)s from previous employers.

The penalty: If you miss an RMD, the penalty is 25% of the shortfall (reduced from the previous 50% by SECURE 2.0). If you correct the error promptly, the penalty drops to 10%.