What Is Required Minimum Distribution?
Required minimum distributions are mandatory annual withdrawals from retirement accounts starting at age 73. Learn RMD rules, calculations, and penalties.
Definition
A required minimum distribution (RMD) is the minimum amount you must withdraw from your tax-deferred retirement accounts (Traditional IRA, 401(k), 403(b)) each year starting at age 73 (increased from 72 by the SECURE 2.0 Act). The IRS requires these withdrawals because the money in these accounts has never been taxed, and the government wants its tax revenue eventually.
Your RMD is calculated by dividing your account balance (as of December 31 of the prior year) by a life expectancy factor from the IRS Uniform Lifetime Table. For example, at age 75, the factor is 24.6, so if your account has $500,000, your RMD is $500,000 / 24.6 = $20,325. The factor decreases each year, meaning RMDs get larger as you age.
Roth IRAs are exempt from RMDs during the account owner's lifetime -- one of the Roth IRA's biggest advantages. Roth 401(k)s were previously subject to RMDs but are now also exempt (thanks to SECURE 2.0). This makes converting traditional accounts to Roth accounts before age 73 an attractive tax planning strategy.
Real-World Example
You are 74 years old with $800,000 in your Traditional IRA. Using the IRS table, your life expectancy factor is 25.5. Your RMD is $800,000 / 25.5 = $31,373. You must withdraw at least this amount by December 31. If you fail to take your RMD, the penalty is 25% of the amount you should have withdrawn (reduced from 50% by SECURE 2.0). On a $31,373 RMD, that is a $7,843 penalty -- one of the harshest in the tax code.
Why It Matters
RMDs force taxable income in retirement whether you need the money or not. For retirees with large Traditional IRA or 401(k) balances, RMDs can push them into higher tax brackets, increase Medicare premiums (IRMAA surcharges), and trigger taxes on Social Security benefits. This is why many financial planners recommend Roth conversions in the years between retirement and age 73 -- paying taxes at a lower rate now to avoid larger RMDs later.
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Frequently Asked Questions
At what age do RMDs start?
Age 73 under current law (SECURE 2.0 Act). This will increase to age 75 starting in 2033. Previously it was 70.5 (before SECURE Act) and 72 (SECURE Act).
Do Roth IRAs have RMDs?
No. Roth IRAs are exempt from RMDs during the owner's lifetime. This is one of the biggest advantages of Roth accounts and a key reason to consider Roth conversions before RMDs begin.
What is the penalty for missing an RMD?
The penalty is 25% of the RMD amount not taken (reduced from 50% by SECURE 2.0). If corrected within 2 years, the penalty drops to 10%. This is one of the most punitive penalties in the tax code.
Can I take more than my RMD?
Yes. The RMD is the minimum. You can withdraw as much as you want. However, all withdrawals from Traditional accounts are taxed as ordinary income, so taking large amounts may push you into a higher tax bracket.
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