Required Minimum Distribution (RMD)

Tax-deferred retirement accounts run on a bargain with the IRS. You skip taxes on the way in and while the money grows, and in exchange the government eventually collects on the way out. The required minimum distribution is how it enforces the "eventually." Starting at age 73 (75 for those born in 1960 or later), owners of traditional IRAs and pre-tax workplace accounts must withdraw at least a formula-driven minimum every year and pay ordinary income tax on it. You can always take more; the rule only sets the floor. Because the IRS has already been paid on Roth money, Roth IRAs have no lifetime RMDs, and Roth 401(k) accounts were freed from them starting in 2024.

The mechanics are simpler than they sound. Take each account's balance on December 31 of the prior year and divide by the factor for your age in the IRS Uniform Lifetime Table (a different table applies if your sole beneficiary is a spouse more than ten years younger). Your first RMD gets a grace period to April 1 of the following year, but using it means taking two RMDs in one tax year, which can push you into a higher bracket. Every later RMD is due by December 31. IRA owners can total their IRA RMDs and take the sum from any one IRA; 401(k) RMDs must be taken from each plan separately. If you're still working past RMD age and don't own more than 5% of the company, you can generally delay RMDs from your current employer's plan (not from IRAs) until you retire.

The penalty for a missed RMD is a 25% excise tax on the amount not taken, reduced to 10% if you correct the shortfall within the window SECURE 2.0 provides, and the IRS can waive it entirely for reasonable cause when you file Form 5329 with an explanation.

RMDs are also a planning trigger. Because they're forced ordinary income, large pre-tax balances can push retirees into higher brackets and raise Medicare premium surcharges. Common countermeasures include Roth conversions in the lower-income years before RMDs begin and, for charitably inclined IRA owners 70 1/2 or older, qualified charitable distributions (QCDs), which send money directly from the IRA to charity, count toward the RMD, and never appear in adjusted gross income. The QCD limit is indexed annually and was $108,000 per person for 2025 (see IRS.gov for the current figure).

A hypothetical example: Joan turns 74 this year, and her traditional IRA was worth $500,000 last December 31. The IRS Uniform Lifetime Table factor at her age is 25.5, so her RMD is $500,000 divided by 25.5, or about $19,600, which she must withdraw by December 31 and report as ordinary income.

Joan doesn't need the cash, and she already gives about $10,000 a year to her church. By making that gift as a qualified charitable distribution straight from the IRA, $10,000 of her RMD obligation is satisfied without ever landing in her taxable income; she withdraws only the remaining $9,600 for herself. Next year the calculation repeats with a new balance and a new factor, so the RMD amount changes every year.

Pros

• Forces a drawdown plan onto savers who might otherwise never touch their accounts, converting savings into income.
• The formula is mechanical and predictable, so RMDs can be scheduled and automated with your custodian.
• Pairs well with charitable giving, since QCDs satisfy the RMD without increasing taxable income.

Cons

• Forced ordinary income whether you need it or not, which can raise your bracket, Medicare premiums, and the taxable share of Social Security.
• The penalty for missing one is steep, and the rules differ between IRAs and workplace plans in easy-to-miss ways.
• Large pre-tax balances can make later RMDs uncomfortably big, a problem better addressed years earlier.