What is an RMD?

What is an RMD?

An RMD is a mandatory annual withdrawal from retirement accounts that grew tax-deferred. When you contributed to a traditional IRA or a 401(k), you likely skipped income tax on that money, and it grew without yearly taxes. RMD rules make sure those balances do not sit untaxed forever. Starting the year you turn 73, the IRS requires you to pull out at least a set minimum and pay ordinary income tax on it. You can always withdraw more than the minimum. You just cannot withdraw less.

At what age do RMDs start?

RMDs begin at age 73. The IRS states you "generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 73."

This age was raised by the SECURE 2.0 Act of 2022. Under that law, the applicable age is 73 for people who reach age 72 after December 31, 2022. It rises again to 75 for those who reach age 74 after December 31, 2032, meaning the age-75 rule takes effect in 2033. If you were already taking RMDs before these changes, you keep going on your existing schedule.

When is the deadline?

You must take each year's RMD by December 31. There is one exception for your very first RMD: you can delay it until April 1 of the year after you turn 73. The IRS puts it this way: "You must take your first required minimum distribution for the year in which you reach age 73. However, you can delay taking the first RMD until April 1 of the following year."

Be careful with that delay. If you push your first RMD into the next year, you still owe that year's regular RMD by December 31 of the same year. That means two taxable withdrawals land in one year, which can push you into a higher tax bracket. Many people take the first RMD in the year they turn 73 to avoid stacking two into one.

How is an RMD calculated?

The formula is simple. Take your account balance as of December 31 of the prior year and divide it by a life-expectancy factor from the IRS Uniform Lifetime Table. As the IRS describes it, an RMD "is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor that the IRS publishes in Tables in Publication 590-B."

The factor gets smaller as you age, so the required percentage of your balance rises over time.

Worked example. Say you turn 73 this year and your traditional IRA was worth $500,000 on December 31 of last year. The Uniform Lifetime Table factor at age 73 is 26.5. Your RMD is $500,000 divided by 26.5, which equals $18,867.92.

So you must withdraw at least $18,867.92 this year and pay ordinary income tax on it. Next year you use next year's balance and the factor for age 74.

If you have more than one traditional IRA, you calculate an RMD for each but can take the total from any one or split it across them. Employer plans like 401(k)s are stricter: each plan's RMD must come out of that specific plan.

Which accounts require RMDs?

RMD rules cover most tax-deferred retirement accounts. They do not apply to Roth IRAs while the owner is alive, and, starting in 2024, they no longer apply to designated Roth accounts inside a 401(k) or 403(b) during the owner's lifetime either. That Roth 401(k) change came from Section 325 of the SECURE 2.0 Act and applies to tax years beginning after December 31, 2023.

Source: IRS, Retirement plan and IRA required minimum distributions FAQs, and IRS Notice 2024-35.

Note the phrase "while the owner is alive." People who inherit a Roth IRA or a designated Roth account are subject to their own distribution rules, so the Roth exemption does not automatically pass to beneficiaries.

What is the penalty for missing one?

If you do not withdraw the full RMD by the deadline, the shortfall can be hit with an excise tax. The IRS states that "the amount not withdrawn may be subject to an excise tax of 25%, 10% if the RMD is timely corrected within two years."

The SECURE 2.0 Act cut this penalty from the old 50% rate down to 25%, and to 10% if you fix the mistake within a two-year correction window by taking the missed amount and filing the right form. Even with the lower rate, it is a steep penalty, so it pays to track your RMDs each year or set up automatic distributions with your account provider.

The bottom line

An RMD is the minimum you must pull from tax-deferred retirement accounts each year once you hit 73, based on your prior year-end balance divided by an IRS life-expectancy factor. Traditional IRAs and most workplace plans are covered; Roth IRAs and, since 2024, Roth 401(k)s are not during your lifetime. Miss one and the shortfall can face a 25% tax, dropping to 10% if you correct it promptly. This is general information, not tax advice. For your own situation, check IRS Publication 590-B or talk to a qualified tax professional.