You spent decades putting money into your retirement accounts. Tax-deferred growth, compound interest, all that good stuff. But the IRS doesn’t let you keep it in there forever. At a certain age, you’re required to start pulling money out — whether you need it or not. These are required minimum distributions, or RMDs, and getting them wrong can cost you a lot.
When RMDs Begin
Under the SECURE 2.0 Act, the RMD starting age is 73 for people born between 1951 and 1959, and 75 for people born in 1960 or later. If you turned 72 before 2023, your RMDs already started under the old rules.
Your first RMD is due by April 1 of the year after you reach the applicable age. Every RMD after that is due by December 31. Here’s the catch that trips people up: if you delay your first RMD to April 1, you’ll have to take two RMDs in the same calendar year — your first one and your regular one. That can push you into a higher tax bracket in a year when you didn’t plan for it.
RMDs apply to traditional IRAs, traditional 401(k)s, 403(b)s, and most other tax-deferred retirement accounts. Roth IRAs do not require RMDs during the owner’s lifetime — which is one of the big reasons people do Roth conversions before RMD age.
How RMDs Are Calculated
The formula is straightforward: 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. The IRS publishes updated tables periodically, and your plan custodian will usually calculate the amount for you.
For example, if your traditional IRA balance was $500,000 on December 31 and your life expectancy factor is 26.5, your RMD would be about $18,868. You can always withdraw more than the minimum — you just can’t withdraw less.
If you have multiple traditional IRAs, you calculate the RMD for each one separately but can take the total from any one (or combination) of them. 401(k) RMDs, however, must be taken from each account individually. This matters if you have retirement accounts scattered across multiple former employers.
What Happens If You Miss One
Missing an RMD used to trigger a 50% excise tax on the amount you should have withdrawn. SECURE 2.0 reduced that penalty to 25%, and it drops to 10% if you correct the mistake within two years. Still steep enough that you really don’t want to test it.
The most common ways people miss RMDs: they forget about an old 401(k) at a former employer, they assume Roth rules apply to all their accounts, or they simply don’t realize they’ve hit the age threshold. Setting a calendar reminder for October each year — giving yourself time to take the distribution before the December 31 deadline — is a simple move that prevents an expensive mistake.
Planning Ahead
RMDs aren’t just a compliance issue. They’re a tax planning issue. Every dollar of your RMD is taxed as ordinary income. That affects your tax bracket, your Medicare premiums (thanks to IRMAA), and potentially how much of your Social Security benefit gets taxed.
Some strategies to consider — ideally with a financial advisor or tax professional:
- Roth conversions before RMD age to reduce future required withdrawals
- Qualified Charitable Distributions (QCDs) to satisfy your RMD while donating to charity tax-free
- Consolidating old 401(k)s into one IRA for simpler RMD management
- Coordinating RMD timing with Social Security claiming for tax efficiency
The point isn’t to avoid RMDs — you can’t. The point is to plan around them so they don’t create unnecessary tax surprises 10 or 15 years into retirement.
The Retirement bundle includes 15 step-by-step worksheets covering Social Security, Medicare, pensions, beneficiary updates, and more. Organizational tools for your next chapter. Browse planning tools at lumeway.co.
The IRS has a timeline for your money. Knowing it lets you plan on your terms, not theirs.
This post is for informational purposes only and does not constitute legal, financial, or medical advice. Consult a licensed professional for guidance specific to your situation.