By SR Staff
You spent decades not touching your traditional IRA and 401(k), letting the money grow tax-deferred. The IRS is fine with that patience — up to a point. Once you hit a certain age, the government wants its cut, whether you're ready to withdraw the money or not.
That's the idea behind Required Minimum Distributions, or RMDs. Missing one can trigger a penalty steep enough to erase months of investment gains in a single mistake. Here's what you need to know about when they start, how to calculate them, and how to avoid the costly errors that trip up even careful savers.
What Are RMDs and Who Must Take Them?
An RMD is the minimum amount you're required to withdraw each year from certain tax-advantaged retirement accounts once you reach a specific age. The rule exists because the IRS deferred taxes on that money for years — sometimes decades — and eventually wants to collect income tax on it.
RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored plans like 401(k)s and 403(b)s. Thanks to the SECURE 2.0 Act, Roth 401(k) accounts are no longer subject to RMDs during the original owner's lifetime, matching the long-standing treatment of Roth IRAs, which have never required distributions for the original owner.
If you're still working past your RMD age and don't own more than 5% of the company sponsoring your plan, you may be able to delay RMDs from that specific employer's 401(k) until you actually retire. This exception doesn't apply to IRAs.
When Your RMDs Must Begin
Under current law, RMDs begin at age 73. Your first RMD deadline has some flexibility: you can take it by December 31 of the year you turn 73, or delay it until April 1 of the following year.
That delay comes with a catch. If you push your first RMD into the following year, you'll still owe your second RMD by that year's December 31 deadline — meaning you'd take two taxable distributions in the same calendar year. For many retirees, that bunching effect pushes them into a higher tax bracket, so it's worth running the numbers with a tax professional before choosing to delay.
Every RMD after your first one is due by December 31 each year, no exceptions.
How to Calculate Your RMD
The calculation itself is straightforward. You divide your retirement account balance as of December 31 of the prior year by a life expectancy factor from an IRS table — most commonly the Uniform Lifetime Table.
Here's a simplified example:
- Account balance on December 31 of last year: $500,000
- IRS life expectancy factor at age 75: 24.6
- RMD amount: $500,000 ÷ 24.6 = $20,325
If you have multiple traditional IRAs, you must calculate the RMD for each one separately, but you're allowed to withdraw the combined total from any single IRA or a mix of them. Workplace plans like 401(k)s work differently — each plan's RMD generally must be withdrawn from that specific plan.
What Happens If You Miss an RMD
This is where the stakes get real. If you fail to withdraw your full RMD by the deadline, the IRS can impose an excise tax on the shortfall. SECURE 2.0 reduced this penalty from 50% to 25% of the amount you should have withdrawn, and it drops further to 10% if you correct the mistake within a defined correction window.
If you do miss a deadline, don't panic — but act quickly. Take the missed distribution as soon as you catch the error, and file IRS Form 5329 to request a penalty waiver for reasonable cause. The IRS has historically been willing to waive the penalty for retirees who can show the miss was an honest mistake and was corrected promptly.
Strategies to Manage Your RMDs
RMDs aren't just a compliance hurdle — they're a piece of your broader income and tax strategy. A few approaches worth discussing with a financial advisor or CPA:
- Qualified Charitable Distributions (QCDs): If you're 70½ or older, you can direct up to $108,000 (2026 limit) directly from your IRA to a qualified charity. The amount counts toward your RMD but isn't included in your taxable income.
- Roth conversions before RMD age: Moving money into a Roth IRA before you're subject to RMDs shrinks the balance that will generate future required withdrawals. If you're weighing whether a Roth conversion strategy makes sense for your situation, the years before age 73 are typically when it has the most impact.
- Reinvesting what you don't need: If your RMD exceeds your spending needs, you can simply reinvest the after-tax proceeds in a taxable brokerage account rather than letting it sit as cash.
How you handle old employer accounts also matters here. Consolidating scattered 401(k)s can simplify RMD tracking considerably — our guide on what to do with your 401(k) when you retire or change jobs walks through the tradeoffs of rolling accounts together versus leaving them where they are.
The Bottom Line
RMDs are one of the few truly non-negotiable deadlines in retirement planning. The rules are knowable, the calculation is simple math, and the penalty for getting it wrong is entirely avoidable with a little advance planning.
If you're within a few years of turning 73, take the time now to map out which accounts will be subject to RMDs, estimate what those withdrawals will look like, and talk to a tax professional about whether strategies like QCDs or Roth conversions belong in your plan. A little preparation turns RMDs from a source of dread into just another line item in a retirement income plan you're already in control of.
Written by: Seeking Retirement