Tax-deferred retirement accounts can help you postpone federal income taxes on certain contributions and investment earnings, but that deferral generally does not last forever. Required minimum distributions eventually require many retirement account owners to begin withdrawing money each year.
For many people currently approaching RMDs, withdrawals generally begin at age 73. The amount you need to take can change annually based on your account balance and an IRS life-expectancy factor. Because taxable RMDs generally become part of your income, they can affect your federal tax bill even when you do not need the money for current expenses.
Knowing the deadlines, calculation methods, tax treatment, and account-specific requirements can help you prepare before your first withdrawal is due.
How Do Required Minimum Distributions Work?
A required minimum distribution, commonly called an RMD, is the minimum amount you generally must withdraw from certain retirement accounts each year after reaching the applicable starting age.
Current RMD rules apply to traditional IRAs and many employer-sponsored retirement plans, while original owners of Roth IRAs and designated Roth workplace accounts generally do not have lifetime RMDs.
Your required amount is typically calculated using your retirement account balance as of December 31 of the previous year and an applicable IRS life-expectancy factor.
You can withdraw above the required amount if you need additional money. However, extra withdrawals generally cannot be credited toward the following year's RMD.
When Do RMDs Start?
For many people currently approaching required withdrawals, the RMD age is 73.
Under current federal law, the applicable starting age is 73 for people who reach age 73 before January 1, 2033. The applicable age increases to 75 for certain younger individuals under the schedule established by federal law.
Your first RMD is generally required for the year you reach the applicable starting age. However, the IRS allows you to postpone that first distribution until April 1 of the following year.
Subsequent RMDs generally must be completed by December 31 each year.
That first-year exception creates an important tax decision.
If you postpone your first RMD until the following year, you generally still need to take your second RMD by December 31 of that same year. As a result, two taxable distributions could appear on one federal income tax return.
Taking your first RMD during the year you reach the applicable age instead may spread those distributions across two tax years.
Which Retirement Accounts Have RMDs?
RMD requirements generally apply to several common tax-deferred retirement accounts.
These include:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- Traditional 401(k) plans
- 403(b) plans
- 457(b) plans
- Profit-sharing plans
- Other defined contribution plans
However, the timing rules can differ depending on the account.
An IRA RMD generally cannot be postponed because you continue working after reaching the applicable starting age.
Certain employer-sponsored retirement plans may work differently. If you're still employed by the company sponsoring your plan, you may be able to postpone RMDs from that particular account until retirement if the plan permits it and you meet the applicable requirements.
The exception generally does not apply to someone who owns over 5% of the business sponsoring the plan.
Which Accounts Generally Require Lifetime RMDs?
| Account | Lifetime RMD for Original Owner? | General Starting Point |
|---|---|---|
| Traditional IRA | Yes | Applicable RMD starting age |
| SEP IRA | Yes | Applicable RMD starting age |
| SIMPLE IRA | Yes | Applicable RMD starting age |
| Traditional 401(k) | Yes | Starting age or potentially retirement under applicable rules |
| Traditional 403(b) | Yes | Starting age or potentially retirement under applicable rules |
| Roth IRA | No | Beneficiary rules may apply after death |
| Designated Roth 401(k) | No | Beneficiary rules may apply after death |
| Designated Roth 403(b) | No | Beneficiary rules may apply after death |
Beneficiaries can face separate distribution requirements after the account owner's death.
How Are RMDs Calculated?
RMD amounts generally change from year to year.
If you're trying to understand how to calculate RMD amounts, the basic formula is fairly straightforward:
Previous December 31 account balance ÷ applicable IRS distribution period = annual RMD
The distribution period comes from an IRS life-expectancy table.
The Uniform Lifetime Table generally applies to many retirement account owners. A different table can apply if your spouse is your sole beneficiary and is over 10 years younger than you. Beneficiaries may use another table depending on their circumstances.
Example of an RMD Calculation
Suppose your applicable retirement account had a balance of $500,000 on December 31 and the applicable distribution period was 26.5.
Your calculation would be:
$500,000 ÷ 26.5 = approximately $18,868
Under those assumptions, your RMD would be roughly $18,868 for the year.
The actual amount depends on your account balance and the IRS table that applies to your situation.
Your IRA custodian or retirement plan administrator may provide an RMD calculation. However, the IRS states that the account owner remains responsible for withdrawing the correct amount.
How Are Required Minimum Distributions Taxed?
RMDs do not have a separate federal income tax rate.
The taxable portion of an RMD is generally included in your income for the year you receive it. Your actual federal tax liability depends on your overall taxable income, filing status, deductions, credits, and applicable tax bracket.
This means the RMD tax effect can vary considerably from one retiree to another.
For example, two people could take identical $20,000 RMDs but have different federal tax liabilities because one receives significant pension and investment income while the other has relatively little additional taxable income.
Amounts representing previously taxed basis may receive different treatment.
Can RMDs Affect Other Retirement Costs?
They can.
Because taxable RMDs generally increase your income, a distribution may affect tax calculations tied to income.
One area retirees may need to watch is Medicare's income-related monthly adjustment amount, commonly known as IRMAA. Higher-income Medicare beneficiaries can pay additional amounts for Part B and Part D.
Social Security taxation can also depend partly on other income. Depending on your circumstances, taxable retirement account distributions may contribute to a larger portion of Social Security benefits being included in taxable income.
The effect depends on your total income and individual tax situation, so an RMD does not automatically increase these expenses for every retiree.
What Happens If You Delay Your First RMD?
Delaying your first RMD until the following April can give your money additional time in the retirement account, but it can also place two required withdrawals in the same tax year.
For example:
| Distribution | Potential Deadline |
|---|---|
| First RMD | April 1 of the following year |
| Second RMD | December 31 of that same year |
If both distributions are taxable, taking them during the same year may result in higher taxable income than taking the first RMD during the previous calendar year.
Higher income could potentially affect your marginal federal income tax rate and other income-based calculations.
However, taking the first RMD earlier is not automatically the better choice. Your expected income, deductions, financial needs, and tax situation for each year should factor into the decision.
How Do RMDs Work When You Have Multiple Accounts?
Owning several retirement accounts can make the withdrawal process less straightforward.
With multiple traditional IRAs, you generally calculate the required amount separately for each IRA. You may then add the amounts together and withdraw the combined total from one or several of those IRAs.
Certain 403(b) accounts have similar aggregation rules.
A 401(k) RMD generally cannot be combined with an IRA RMD. Required withdrawals from accounts such as 401(k) plans generally must be satisfied separately.
For example, suppose you have:
- Traditional IRA A
- Traditional IRA B
- A 401(k) from a former employer
You could generally calculate the required distribution for each IRA and take the combined IRA amount from one of those IRAs.
However, taking extra money from an IRA generally would not satisfy the required distribution from your former employer's 401(k).
Keeping a complete list of your retirement accounts can help reduce the chance of overlooking a required withdrawal.
What Happens If You Miss an RMD?
Failing to withdraw the full required amount by the applicable deadline can result in an excise tax.
Under current federal rules, the excise tax is generally 25% of the amount you failed to withdraw. The rate can potentially be reduced to 10% if the shortfall is corrected within the applicable correction period, subject to IRS requirements.
For example, suppose your required withdrawal was $20,000 but you took only $15,000.
Your shortfall would be:
$20,000 − $15,000 = $5,000
At the 25% rate, the excise tax on the shortfall would be $1,250 before accounting for any reduction or available relief.
The IRS may waive the excise tax when a shortfall resulted from reasonable error and reasonable actions are being taken to correct it. Applicable filing and documentation requirements apply.
This is an important update for articles written under older rules, when the missed-RMD penalty was substantially higher.
Can You Take More Than Your Required Amount?
Yes. An RMD establishes the minimum amount you generally need to withdraw for that year.
If your RMD is $15,000 and you withdraw $25,000, you have satisfied the current year's requirement.
However, the additional $10,000 generally cannot count toward next year's required distribution. Next year's RMD will be calculated separately based on the applicable account balance and IRS distribution period.
Additional taxable withdrawals may also increase your income for the current year.
Can You Reinvest an RMD?
You cannot generally roll an RMD into another tax-deferred retirement account because required distributions are not eligible rollover distributions.
However, you do not necessarily need to spend the money.
After satisfying the RMD and any applicable tax obligation, you could generally invest the remaining proceeds in a taxable brokerage account, place the money in savings, use it for living expenses, or direct it toward another financial goal.
Reinvesting the proceeds does not undo the taxable retirement-account distribution.
Do Roth Accounts Have RMDs?
Original Roth IRA owners generally do not need to take lifetime RMDs.
Current federal rules also eliminate lifetime RMDs for original owners of designated Roth accounts in employer-sponsored plans such as Roth 401(k)s and Roth 403(b)s.
Beneficiaries can still face distribution requirements after inheriting a Roth account.
This difference may matter when comparing traditional and Roth retirement savings.
Traditional retirement contributions can provide current tax advantages when applicable, while distributions are generally taxable later. Roth contributions generally use after-tax money, while qualified withdrawals can generally be tax-free.
Your current tax rate, expected retirement tax rate, eligibility, retirement timeline, and other financial factors can influence which account structure fits your circumstances.
Can Roth Conversions Reduce Future RMDs?
Potentially.
A Roth conversion moves eligible assets from a traditional tax-deferred retirement account into a Roth account. The converted amount is generally included in taxable income during the year of conversion.
Once money is held in a Roth IRA, it generally does not create lifetime RMDs for the original owner.
Reducing a traditional account balance through conversions before RMDs begin can therefore reduce the balance used to determine future required withdrawals.
However, a large conversion can significantly increase taxable income during the conversion year. That could affect your tax bracket and other income-related calculations.
A conversion therefore requires comparing the potential tax cost today against possible future tax consequences.
Can a Qualified Charitable Distribution Satisfy an RMD?
For eligible IRA owners, it can.
A qualified charitable distribution, commonly called a QCD, allows an eligible individual to transfer money directly from an IRA to an eligible charitable organization.
You generally must be at least age 70½ when the distribution occurs. A qualifying transfer can count toward your RMD while potentially being excluded from taxable income, subject to current IRS rules and annual limits.
The transfer generally needs to move directly from the IRA trustee to the eligible charitable organization.
Taking an IRA distribution yourself and later donating the same amount may receive different tax treatment.
QCD rules have eligibility requirements and annual limits, so current IRS guidance should be checked before making a transfer.
Could Taking Withdrawals Before RMDs Begin Help?
In some circumstances, taking voluntary withdrawals before reaching your RMD starting age could reduce the balance that later determines required withdrawals.
This strategy involves a trade-off.
Traditional retirement account withdrawals are generally taxable, so taking money earlier may create a tax bill sooner. You also give up some potential tax-deferred investment growth on the money withdrawn.
On the other hand, smaller account balances may result in smaller required withdrawals later.
The result depends on factors such as current and expected tax rates, retirement income, account balances, Social Security, Medicare costs, and how long the money may remain invested.
What Should You Check Before Your First RMD?
Before your first required withdrawal, it can help to review several items:
- List your traditional IRAs and employer-sponsored retirement accounts.
- Identify which accounts are subject to RMD requirements.
- Confirm your applicable RMD starting age.
- Check the December 31 balance for each affected account.
- Determine which IRS life-expectancy table applies.
- Calculate each account's required amount.
- Check which accounts permit aggregation and which require separate withdrawals.
- Compare the tax impact of taking your first RMD this year versus postponing it until the following April.
- Arrange withdrawals early enough to avoid missing the deadline.
- Keep documentation showing that each required amount was distributed.
Your financial institution may help calculate an RMD, but responsibility for taking the correct amount remains with the account owner.
Planning for RMDs and Taxes
Required minimum distributions can turn years of tax-deferred retirement savings into taxable income once you reach the applicable starting age.
For many people currently approaching RMDs, that age is 73. Traditional IRAs and many employer-sponsored plans generally have RMD requirements, while original owners of Roth IRAs and designated Roth workplace accounts generally do not face lifetime RMDs.
The timing of your first withdrawal can matter because postponing it until the following April may place two distributions in the same tax year. Missing a required withdrawal can also trigger an excise tax.
Before your first RMD, reviewing your account balances, deadlines, expected retirement income, and potential tax consequences can help you prepare for the withdrawal rather than reacting after the deadline.
RMD laws, tax thresholds, and annual limits can change. Check current IRS guidance and seek individualized advice from a qualified tax or financial professional when your situation requires it.
