At some point, the IRS gently taps you on the shoulder and says: “You’ve had a nice long run with tax deferral… now we’d like a little back.”
That tap is called a Required Minimum Distribution, or RMD.
If you have retirement accounts like a traditional IRA or 401(k), understanding RMD rules is essential to avoid penalties and to plan smartly. Let’s walk through what RMDs are, when they begin, how they’re calculated, and how to tax plan around them.
What Is a Required Minimum Distribution?
A Required Minimum Distribution is the minimum amount you must withdraw each year from certain retirement accounts once you reach a specific age.
RMDs apply to:
• Traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• 401(k), 403(b), and most employer retirement plans
RMDs do not apply to Roth IRAs during the original owner’s lifetime. However, Roth 401(k)s are subject to RMDs unless rolled into a Roth IRA.
The idea is simple: the government allowed you to defer taxes while you were saving. Eventually, it wants the income tax revenue.
At What Age Do RMDs Begin?
Thanks to recent law changes under the SECURE Act and SECURE 2.0, the starting age now depends on your birth year.
Here are the current rules:
- If you were born in 1950 or earlier
Your RMD age was 72. - If you were born 1951 through 1959
Your RMD age is 73. - If you were born in 1960 or later
Your RMD age will be 75.
Yes, that means someone turning 73 today is subject to RMDs, but someone turning 62 today won’t start until age 75.
Planning note: The IRS uses the year you reach the required age. Your first RMD must be taken by April 1 of the year following the year you turn the required age. Every RMD after that must be taken by December 31 each year.
Important example
If you turn 73 in 2026, your first RMD is for 2026. You can take it anytime in 2026 or delay it until April 1, 2027. But if you delay, you will also have to take your 2027 RMD by December 31, 2027. That means two taxable distributions in one year.
Sometimes that double-income year is not ideal.
How Is an RMD Calculated?
Your RMD is calculated using:
Account balance as of December 31 of the prior year
Divided by
Your life expectancy factor from the IRS Uniform Lifetime Table
For example:
If your IRA balance on December 31 was 500,000 and your life expectancy factor at age 73 is 26.5, your RMD would be:
500,000 ÷ 26.5 = 18,868
That 18,868 is taxable as ordinary income.
The percentage withdrawn increases as you age because your life expectancy factor decreases. In your early 70s, the RMD is roughly 3.6 to 4 percent. By your 80s, it grows closer to 5 to 6 percent or more.
What Happens If You Miss an RMD?
Historically, the penalty was 50 percent of the amount not withdrawn.
Under SECURE 2.0, the penalty has been reduced:
• 25 percent of the amount not taken
• Reduced to 10 percent if corrected in a timely manner
That is still significant. If you were supposed to take 20,000 and forgot, the penalty could be 5,000.
The IRS does allow correction procedures, but it is far better to plan ahead.
How RMDs Are Taxed
RMDs are taxed as ordinary income at your marginal tax rate.
They can:
• Push you into a higher tax bracket
• Increase taxation of Social Security benefits
• Increase Medicare Part B and Part D premiums through IRMAA surcharges
• Trigger the 3.8 percent Net Investment Income Tax in certain cases
RMD income also increases Adjusted Gross Income, which can affect deductions, credits, and phaseouts.
RMDs are not subject to early withdrawal penalties, but they are fully taxable unless you have after-tax basis in the account.
Smart Tax Planning Around RMDs
Now the fun part. Just because RMDs are required does not mean you cannot plan for them.
Here are practical strategies:
1. Consider Roth Conversions Before RMD Age
In your 60s and early 70s, especially after retirement but before RMDs begin, you may be in a lower tax bracket.
Converting part of a traditional IRA to a Roth IRA during those lower-income years can reduce future RMDs and future taxable income.
Yes, you pay tax now. But you may reduce lifetime taxes overall.
Be sure to discuss this with your CPA prior to taking this step as you should tax plan and review the potential higher earnings traps.
2. Delay Social Security Strategically
If you delay Social Security until age 70 and use IRA withdrawals strategically in your 60s, you can smooth income over time rather than stacking RMDs on top of Social Security.
Income layering matters.
Married people should consider who should “go first” and what that means for the Survivors’ Benefits!
3. Use Qualified Charitable Distributions
Once you reach age 70½, you can make a Qualified Charitable Distribution directly from your IRA to a qualified charity.
For 2025, the annual QCD limit is 105,000 per person, indexed for inflation.
A QCD:
• Satisfies your RMD
• Is excluded from taxable income
• Lowers Adjusted Gross Income
This is one of the most tax-efficient ways to give to charity.
4. Continue Working Exception for 401(k)
If you are still working and do not own more than 5 percent of the company, you may be able to delay RMDs from your current employer’s 401(k) until you retire.
This does not apply to IRAs.
5. Manage the First-Year Double RMD Trap
Remember the April 1 delay option? Sometimes it is better to take your first RMD in the year you turn the required age rather than delay it and stack two RMDs into the following year.
A projection can help determine which option minimizes total tax.
Special Situations to Be Aware Of
Inherited accounts follow different RMD rules depending on when the original owner died and who the beneficiary is. Many non-spouse beneficiaries must withdraw the entire account within 10 years.
Also, Roth 401(k) accounts are subject to RMDs unless rolled to a Roth IRA.
And if you have multiple IRAs, you can aggregate the RMD and take the total from one IRA. However, you cannot aggregate IRA RMDs with 401(k) RMDs.
Details matter.
The Big Picture
RMDs are not just about taking money out of an account. They are about managing taxable income in retirement.
Done poorly, RMDs can:
• Increase taxes
• Increase Medicare premiums
• Reduce tax efficiency for heirs
Done strategically, they can:
• Be smoothed over multiple years
• Be paired with Roth planning
• Be reduced through charitable strategies
• Be integrated into a long-term income plan
RMD planning is really retirement tax planning.
Final Thought
You spent decades building your retirement accounts. The distribution phase deserves just as much attention as the accumulation phase.
The IRS will eventually require its share. The key is deciding when and how much tax you pay along the way.
With thoughtful planning, RMDs become manageable, predictable, and far less painful.
And that gentle IRS tap on the shoulder? It feels a lot less surprising when you see it coming.
This blog is for information purposes and should not be taken as tax advice.
Contact your CPA for your individual tax planning advice.
