Required minimum distributions, explained

For decades, money in a traditional IRA or 401(k) grows tax-deferred. You put money in pre-tax, it compounds without annual taxation, and you pay income tax when you eventually withdraw it. The IRS is patient — but not indefinitely. At age 73, it requires you to start taking money out, whether you want to or not.

These are required minimum distributions, or RMDs. They’re one of the more confusing corners of retirement tax planning, partly because the rules have changed several times in recent years, and partly because the consequences of getting them wrong are significant.

The basic mechanics

An RMD is a minimum amount you must withdraw from certain tax-deferred retirement accounts each year, beginning at age 73 (under the SECURE 2.0 Act, which moved the starting age from 72). The accounts subject to RMDs include:

• Traditional IRAs
• Rollover IRAs
• SEP IRAs
• SIMPLE IRAs
• Most 401(k), 403(b), and 457(b) plans

Roth IRAs are the notable exception: they are not subject to RMDs during the original owner’s lifetime. Roth 401(k)s were also exempted from RMDs starting in 2024 under SECURE 2.0.

The amount you must withdraw each year is calculated by dividing the account balance (as of December 31 of the prior year) by a life expectancy factor from IRS tables. The IRS publishes three tables — most people use the Uniform Lifetime Table, which determines the factor based on your age. The calculation produces a different required amount each year, generally increasing as a percentage of the account balance as you age.

The penalty for missing an RMD

If you fail to take a required minimum distribution, or take less than the required amount, the IRS charges a 25% excise tax on the amount not withdrawn. If corrected within two years, that penalty drops to 10% — but it’s still a meaningful cost for an avoidable mistake.

This is one area where setting up automatic annual reminders, or working with a financial institution that tracks RMD requirements, is worth the effort.

Your first RMD: the April 1 exception

The year you turn 73, you have until April 1 of the following year to take your first RMD. This is the only year with that extended deadline.

The catch: if you delay to April 1, you’ll take two RMDs in the same calendar year — one for the year you turned 73 (due by April 1) and one for the current year (due by December 31). Two RMDs in one year means more taxable income, which can push you into a higher bracket, trigger or increase Medicare’s IRMAA surcharges, or affect the taxation of Social Security benefits.

Whether taking the first RMD in the year you turn 73 or waiting until the following April makes more sense depends on that year’s income picture. It’s worth modeling in advance with a tax professional rather than defaulting to the later deadline.

How RMDs interact with taxes

RMD withdrawals are taxed as ordinary income in the year they’re taken. They stack on top of Social Security income, pension income, and any other withdrawals — and that combined income total determines your tax bracket, Medicare surcharges, and how much of your Social Security benefit is subject to tax.

For retirees with significant traditional IRA or 401(k) balances, RMDs can be large enough to push income into a higher bracket than anticipated. A portfolio of $1 million in tax-deferred accounts, for example, produces an RMD of roughly $36,000 at age 73 — and that number grows each year. For someone with $2 million in tax-deferred accounts, the RMD is over $72,000.

This is why the years between 63 and 72 — after income from work typically drops, but before RMDs begin — are often discussed as a planning window. Someone in a lower bracket during those years might consider Roth conversions (moving money from a traditional IRA to a Roth) to reduce the tax-deferred balance that will eventually generate RMDs. Smaller future RMDs can mean lower taxable income in later retirement, less exposure to IRMAA, and a more manageable tax picture overall.

Roth conversions have their own costs and considerations — they’re taxable in the year of conversion — and whether they make sense depends on an individual’s tax situation, state of residence, and expected future income. This is an area where working through the numbers with a tax professional or financial planner is genuinely worth the time.

Sequence of returns risk and RMDs

One underappreciated interaction: if you’re in the early years of retirement and markets decline sharply, you’re still required to take your RMD — calculated on the prior year’s (higher) balance. Selling assets in a down market to fund a required distribution, when the portfolio is already declining, can have a lasting impact on long-term recovery.

This doesn’t mean RMDs are catastrophic in down markets — but it’s a reason why holding some portion of retirement income in less volatile assets (bonds, cash equivalents) can buffer against being forced to sell equities at a loss to meet a distribution requirement. How to structure that buffer is part of the broader withdrawal strategy question covered in Withdrawal strategy basics: which account to draw from first.

Qualified charitable distributions (QCDs)

If you’re 70½ or older and charitably inclined, qualified charitable distributions offer a way to satisfy an RMD without recognizing the withdrawal as taxable income. A QCD is a direct transfer from your IRA to a qualified charity — up to $105,000 per year in 2025, indexed for inflation.

The amount transferred counts toward your RMD for the year but doesn’t show up as taxable income. For someone who gives to charity regularly and would otherwise report that income and then take a charitable deduction, a QCD can be more tax-efficient — especially for people who take the standard deduction rather than itemizing.

QCDs have specific requirements: the transfer must go directly from the IRA to the charity (not to you first), and not all account types or charities qualify. The IRS guidance at irs.gov covers the details.

Multiple accounts: aggregation rules

If you have multiple traditional IRAs, you calculate the RMD for each one separately — but you can take the total required amount from any combination of those IRAs. You don’t have to withdraw from each account individually.

Workplace plans (401(k)s, 403(b)s) are different: RMDs from those accounts generally can’t be aggregated with IRA RMDs and must be taken separately from each plan. If you’ve rolled old 401(k)s into a traditional IRA, they’re now subject to IRA aggregation rules rather than plan-by-plan rules.

Still working at 73?

If you’re still employed at 73 and participate in your current employer’s 401(k), you may be able to delay RMDs from that specific plan until you retire — as long as you don’t own more than 5% of the company. This exception applies only to the current employer’s plan, not to IRAs or old 401(k)s from prior employers.

Where to start

The IRS publishes RMD tables and calculation worksheets directly at irs.gov. Most major financial institutions also calculate and track RMDs for accounts held with them, and some will process automatic annual distributions if you set them up.

For anything involving tax strategy — Roth conversions, QCDs, timing your first RMD, managing IRMAA exposure — a CPA or financial planner with retirement income experience is the right resource. The decisions are interconnected enough that modeling them in isolation tends to miss important interactions.

Related reading: Withdrawal strategy basics: which account to draw from first and The real cost of claiming Social Security at 62.