What Is Required Minimum Distribution (RMD)?
A required minimum distribution (RMD) is the minimum amount that must be withdrawn annually from tax-deferred retirement accounts — including Traditional IRAs, 401(k)s, and 403(b)s — once the account holder reaches age 73. RMDs ensure tax-deferred savings are eventually taxed as income. The annual amount is calculated by dividing the prior year-end account balance by an IRS life expectancy factor. Failure to take an RMD incurs a 25% excise tax on the shortfall.
Key Facts
- SECURE 2.0 raised the RMD starting age from 72 to 73 (effective 2023) and will raise it again to 75 in 2033 — each increase gives retirees additional years of tax-deferred growth before mandatory withdrawals begin
- The penalty for failing to take an RMD was reduced from 50% to 25% of the shortfall by SECURE 2.0, and further reduced to 10% if corrected within 2 years — but even the reduced penalty makes missing an RMD among the most expensive tax mistakes a retiree can make
- RMDs do not apply to Roth IRAs during the owner's lifetime — this is one of the primary advantages of Roth conversions before age 73, as it permanently eliminates forced distributions and allows continued tax-free growth
- SECURE 2.0 eliminated RMDs for Roth 401(k) and Roth 403(b) accounts starting in 2024, aligning employer-sponsored Roth accounts with Roth IRA rules — previously, Roth 401(k) participants had to take RMDs or roll to a Roth IRA to avoid them
- The IRS Uniform Lifetime Table divides your balance by a life expectancy factor — at age 73 the factor is 26.5 (approximately 3.8% of balance), at 80 it's 20.2 (approximately 5.0%), and at 90 it's 12.2 (approximately 8.2%), with percentages increasing each year as remaining life expectancy shortens
How Are RMDs Calculated?
The annual RMD is calculated using a simple formula:
- RMD = Prior Year-End Account Balance ÷ IRS Life Expectancy Factor
The IRS provides three life expectancy tables (IRS Publication 590-B):
- Uniform Lifetime Table: Used by most account holders. Based on the joint life expectancy of you and a hypothetical beneficiary 10 years younger.
- Joint Life Table: Used only when your sole beneficiary is a spouse more than 10 years younger. Produces a smaller RMD (longer life expectancy divisor).
- Single Life Table: Used by beneficiaries who inherit retirement accounts.
Example at age 75: Account balance of $500,000 ÷ Uniform Lifetime factor of 24.6 = RMD of $20,325. This amount must be withdrawn by December 31 (except for the first RMD year, which has an April 1 deadline for the prior year's distribution).
Which Accounts Require RMDs?
RMDs apply to all tax-deferred retirement accounts where contributions were deductible or pre-tax:
- Subject to RMDs: Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k), 403(b), 457(b), and most other employer-sponsored plans
- Exempt from RMDs: Roth IRAs (during owner's lifetime), Roth 401(k) and Roth 403(b) (starting 2024 under SECURE 2.0)
- Still-working exception: If you're still employed and own less than 5% of the company, you can delay 401(k) RMDs from that employer's plan until you actually retire
If you have multiple Traditional IRAs, you calculate the RMD for each but can withdraw the total from any one (or combination) of IRAs. For employer plans, each plan's RMD must be taken from that specific plan.
RMD Strategies and Tax Planning
RMDs force taxable income, which can trigger several consequences:
- Tax bracket creep: Large RMDs can push retirees into higher brackets. A $1.5 million IRA requires approximately $56,600 in RMDs at age 73 — on top of Social Security and other income.
- Medicare premium surcharges (IRMAA): Income above $103,000 (single) triggers higher Medicare Part B and Part D premiums. RMDs count as income for IRMAA calculations.
- Social Security taxation: RMD income can push combined income above the threshold where up to 85% of Social Security benefits become taxable.
Strategic Roth conversions in the years between retirement and age 73 can reduce future RMDs by moving money from tax-deferred to tax-free accounts before the mandatory withdrawal clock starts.
RMDs and Financial Distress
For most retirees, RMDs are a tax planning issue, not a financial distress indicator. However, the intersection with the ADI's Buffer Depletion thesis is relevant in two ways: First, retirees who have already depleted retirement savings through hardship withdrawals and loans during working years have smaller balances generating smaller RMDs — potentially insufficient income in retirement. Second, the 10-year distribution rule for inherited IRAs (post-SECURE Act 2019) forces heirs to liquidate inherited accounts within 10 years, potentially triggering large taxable distributions during their peak earning years.
State-by-State Variations
RMD rules are federal, but state income tax treatment of the resulting distributions varies — affecting the net income retirees retain from their required withdrawals.
| State | Key Difference |
|---|---|
| Florida | No state income tax. RMD distributions are taxed only at the federal level, making Florida one of the most tax-efficient states for retirees with large tax-deferred retirement accounts. |
| Illinois | Exempts all retirement income from state income tax, including RMD distributions. Combined with a flat 4.95% income tax rate on non-retirement income, Illinois provides significant tax savings for retirees. |
| New York | Offers a $20,000 retirement income exclusion for residents age 59½ and older. RMD distributions above $20,000 are taxed at regular New York rates (up to 10.9%). NYC residents face additional city income tax. |
| California | Taxes RMD distributions as ordinary income at rates up to 13.3% with no retirement income exclusion. California is one of the most expensive states for retirees with significant tax-deferred retirement assets. |
| Pennsylvania | Does not tax retirement distributions taken after age 59½ (treated as retirement income). RMDs taken at 73+ are fully exempt from the flat 3.07% Pennsylvania income tax. |
Frequently Asked Questions
At what age do I have to start taking RMDs?
Age 73 if you were born between 1951-1959. Age 75 if born in 1960 or later (effective 2033). Your first RMD must be taken by April 1 of the year following the year you turn 73 (or 75). All subsequent RMDs must be taken by December 31 of each year.
What happens if I don't take my RMD?
SECURE 2.0 reduced the penalty from 50% to 25% of the shortfall amount. If you correct the error within 2 years by taking the missed distribution and filing a corrected return, the penalty is further reduced to 10%. Even at 10%, this is one of the most expensive tax errors a retiree can make.
Do Roth IRAs have RMDs?
No. Roth IRAs are exempt from RMDs during the owner's lifetime. Starting in 2024, Roth 401(k) and Roth 403(b) accounts are also exempt (previously they required RMDs unless rolled to a Roth IRA). This is a key reason to consider Roth conversions before age 73.
Can I donate my RMD to charity?
Yes. A Qualified Charitable Distribution (QCD) allows you to direct up to $105,000 per year (2025, indexed to inflation) from your IRA directly to a qualified charity. The QCD satisfies your RMD without counting as taxable income — one of the most tax-efficient charitable giving strategies available.
How do RMDs affect my taxes?
RMDs are taxed as ordinary income and can push you into a higher tax bracket, trigger Medicare IRMAA surcharges (above $103,000 income), and cause up to 85% of Social Security benefits to be taxable. Strategic Roth conversions before age 73 can reduce future RMD amounts.