Required Minimum Distributions: What They Are and How to Manage Them

What Is a Required Minimum Distribution?

When you contribute to a traditional IRA or 401(k), you defer income taxes on that money. The IRS eventually requires you to take money out — and pay the taxes — through Required Minimum Distributions. RMDs are the government’s mechanism for collecting deferred taxes before account holders die and pass assets to heirs.

RMDs apply to:

• Traditional IRAs
• 401(k), 403(b), and 457(b) accounts (from former and current employers)
• SIMPLE and SEP IRAs
• Inherited IRAs (different rules apply)

Roth IRAs are exempt from RMDs during the original owner’s lifetime — one of Roth’s most powerful long-term advantages.

When Do RMDs Start?

Under the SECURE Act 2.0 (enacted in 2022), the RMD starting age was raised to 73 for anyone who turns 72 after December 31, 2022. It will increase to 75 for those born in 1960 or later.

Your first RMD is due by April 1 of the year following the year you turn 73. Every subsequent RMD must be taken by December 31 of each year. If you delay your first RMD to April 1, you’ll effectively take two RMDs that year — which could push you into a higher tax bracket.

How Is the RMD Amount Calculated?

Your RMD is calculated by dividing your account balance on December 31 of the prior year by a life expectancy factor from the IRS Uniform Lifetime Table. The factor decreases as you age, meaning the required percentage you must withdraw increases each year.

For example: if your traditional IRA balance was $500,000 on December 31 and your IRS life expectancy factor is 26.5 (at age 73), your RMD is approximately $18,868 ($500,000 ÷ 26.5).

If you have multiple IRAs, you calculate the RMD for each account separately but can take the total from any one or combination of IRAs. You cannot aggregate 401(k) RMDs — those must be taken from each account individually.

What Happens If You Miss an RMD?

The penalty for missing or under-taking an RMD is a 25% excise tax on the amount you should have withdrawn but didn’t. (If you self-correct within two years, the penalty drops to 10%.) This is one of the steeper penalties in the tax code, but it is correctable — notify your IRA custodian, take the missed amount, and file IRS Form 5329.

Strategies to Reduce the Tax Impact

Roth Conversions Before RMDs Begin

In the years between retirement and age 73, your taxable income may be lower than it was during your working years and lower than it will be once RMDs start. This window is an opportunity to convert traditional IRA funds to a Roth IRA — paying tax now at a potentially lower rate, reducing your future RMD balance, and creating tax-free assets.

The optimal conversion amount fills your current tax bracket without pushing you into the next one. This is worth modeling with a tax advisor or financial planner.

Qualified Charitable Distributions (QCDs)

If you are 70½ or older, you can transfer up to $105,000 per year (2026 limit) directly from your IRA to a qualified charity. This transfer counts toward your RMD but is not included in your taxable income — meaning you satisfy the distribution requirement without the tax bill.

This is particularly valuable if you don’t itemize deductions, because a charitable deduction on Schedule A would only help if you exceed the standard deduction. With a QCD, the exclusion from income benefits you regardless.

Using RMDs Strategically

An RMD doesn’t have to be spent — it just has to be taken. You can withdraw the required amount and immediately reinvest it in a taxable brokerage account, a savings account, or use it to fund a Roth IRA if you still have earned income and are eligible. The tax has been paid; the money is still yours.

RMDs and Inherited IRAs

If you inherit an IRA from someone other than a spouse, the rules changed significantly under SECURE Act 2.0. Most non-spouse beneficiaries must now empty the inherited IRA within 10 years of the original owner’s death. Certain eligible designated beneficiaries (a surviving spouse, minor children, disabled individuals) have different treatment. The rules here are complex — if you’ve inherited an IRA, consult a tax advisor before taking any distributions.

What to Do Before RMDs Begin

The five-to-ten years before your RMDs start is the most important planning window. Consider:

1. Model what your RMDs will look like given current account balances and expected growth.
2. Evaluate Roth conversion opportunities while your income is lower.
3. Plan how you will take distributions (lump sum, monthly installments, from which accounts).
4. If charitably inclined, learn about QCDs so you can use them from day one.
5. Tell your IRA custodian your preferences — some can automate annual RMD payments.