Required Minimum Distribution

A required minimum distribution (RMD) is the minimum amount you must withdraw annually from certain retirement accounts starting at age 73. The IRS requires these withdrawals to ensure that money set aside for retirement is eventually taxed. Failing to withdraw the required amount results in a 25% penalty on the shortfall.

How RMDs work

The IRS forces you to withdraw money from retirement accounts starting at age 73 (increased from 72 in 2023) because it wants to eventually tax that money. RMDs prevent people from hiding retirement assets in tax-deferred accounts indefinitely.

The calculation is: RMD = Account balance on prior December 31 ÷ IRS life expectancy factor

For example: you turn 73 in 2024, and your traditional IRA has $500,000 at December 31, 2023. The IRS life expectancy factor for age 73 is 26.5 (per the IRS Uniform Lifetime Table). Your RMD = $500,000 ÷ 26.5 = $18,868.

You must withdraw at least $18,868 by December 31, 2024. If you withdraw $18,000 instead, you owe a 25% penalty on the $868 shortfall = $217 penalty.

Accounts subject to RMD

• Traditional IRAs — yes
• 401(k) plans — yes
• 403(b) plans — yes
• 457 plans — yes
• SEP IRA — yes
• SIMPLE IRA — yes
• Roth IRA — no (not during account owner’s lifetime; beneficiaries have RMDs)
• Roth 401(k) — yes (subject to RMD while account owner is alive)

Special rules

Still working exception. If you are still employed and have a 401(k) with your current employer (and do not own 5% or more of the company), you may be able to defer RMDs until you actually retire. This does not apply to IRAs.

Spouse as beneficiary. If your spouse is the beneficiary of your IRA, they can treat it as their own and delay RMDs.

Roth conversions do not reset RMDs. Converting traditional IRA to Roth IRA does not reduce your RMD from the traditional balance before conversion.

First RMD timing

Your first RMD must be withdrawn by April 1 of the year following the year you turn 73. For example, if you turn 73 in 2024, your first RMD must be withdrawn by April 1, 2025.

This deadline is called the “required beginning date” (RBD). However, many people withdraw RMDs by December 31 to avoid the April 1 deadline (after which you have two distributions in one calendar year, increasing taxable income).

Tax treatment

RMDs are taxed as ordinary income. If you withdraw $20,000, it is added to your income for the year at your marginal tax rate.

For Roth IRAs, there is no RMD for the account owner (though conversions earlier in life, which are taxable, have already been taxed).

Strategies to minimize RMDs

Convert to Roth. Roth conversions in your 60s reduce your traditional IRA balance before RMDs begin, lowering future RMDs.

Donate to charity (QCDs). If you are charitably inclined, a Qualified Charitable Distribution (QCD) lets you donate your RMD directly to charity, satisfying the RMD requirement without adding to taxable income.

Spread across accounts. If you have multiple IRAs, you can aggregate RMD calculations across them and withdraw from a single account, giving flexibility.

Work longer. If you are still employed at 73+, the “still working exception” on 401(k)s delays RMDs.

The 25% penalty: recent change

In 2024, the IRS reduced the RMD penalty from 50% to 25% for non-compliance, making it less punitive. However, 25% is still substantial, and the IRS takes RMD compliance seriously.

Impact on Medicare and taxes

High RMDs can affect:

• Medicare premiums (IRMAA). RMDs increase your Modified Adjusted Gross Income (MAGI), which can increase Medicare Part B and D premiums if you exceed certain thresholds.
• Social Security taxation. Higher income from RMDs can trigger taxation of your Social Security benefits.

Tax planning around RMDs is important for retirees.

See also