Required Minimum Distributions Explained

Required minimum distributions, or RMDs, are the minimum amounts the IRS requires you to withdraw each year from most tax-deferred retirement accounts once you reach a certain age. They exist because the government eventually wants its share of the tax-deferred growth those accounts enjoyed for decades.

Which Accounts Are Affected

RMDs generally apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer-sponsored plans like 401(k)s and 403(b)s. Roth IRAs are not subject to RMDs during the original owner's lifetime, which is one reason some savers use Roth conversions to shrink their future RMD obligations. Roth 401(k) balances, by contrast, historically were subject to RMDs unless rolled into a Roth IRA — a rule that has been changing in recent years, so it is worth confirming the current treatment before relying on it.

How the Amount Is Calculated

Your RMD for the year is calculated by dividing your retirement account balance as of December 31 of the prior year by a life-expectancy factor published in the IRS's Uniform Lifetime Table (a different table applies if your sole beneficiary is a spouse more than ten years younger than you). The result is the minimum you must withdraw that year — you are always free to withdraw more.

If you own multiple traditional IRAs, you can calculate each account's RMD separately but withdraw the combined total from any one IRA or a combination of them. Employer plan RMDs, by contrast, generally must be taken separately from each plan.

Timing and Penalties

Your first RMD can be delayed until April 1 of the year after you reach the applicable RMD age, but doing so means taking two RMDs in that following year — your delayed first one and your regular second one — which can push you into a higher tax bracket. Every RMD after the first must be taken by December 31 of that year.

Missing an RMD, or withdrawing less than required, triggers an excise tax penalty on the shortfall. The penalty has been reduced in recent years but remains a meaningful cost, and the IRS will generally waive it if the shortfall is corrected promptly and a reasonable cause is documented.

Strategies Worth Discussing With a Tax Professional

• Qualified charitable distributions (QCDs): if you are charitably inclined, directing an RMD (or a portion of it) straight to a qualified charity can satisfy the RMD without adding the amount to your taxable income.
• Roth conversions before RMD age: converting a portion of a traditional balance in lower-income years can shrink the balance subject to future RMDs.
• Still-working exception: some employer plans allow you to delay RMDs from that specific employer's plan while you are still working there and do not own more than 5% of the company — this exception does not apply to IRAs.

RMD rules have changed several times over the past few years, including the applicable starting age, so it is worth confirming the current rules with a tax professional or the IRS's own guidance before making withdrawal decisions.

Sample content for demonstration purposes — not financial advice.