Required Minimum Distributions (RMDs) Explained
The IRS lets your traditional IRA grow tax-deferred for decades, then comes to collect. RMDs are how it does that, and the penalty for ignoring them is steep.
Don't have time? Here's what you need to know:
- 1RMDs force annual withdrawals from traditional retirement accounts starting around age 73, and every dollar is taxed as ordinary income.
- 2Roth IRAs and, recently, Roth 401(k)s have no lifetime RMDs, so that money keeps compounding tax-free.
- 3Roth conversions and deliberate withdrawals in your 60s shrink future RMDs by lowering the traditional balance they're based on.
- 4A qualified charitable distribution can satisfy your RMD while keeping the amount entirely out of taxable income.
What an RMD Is and Why It Exists
A required minimum distribution is the minimum amount the IRS forces you to withdraw each year from most tax-deferred retirement accounts once you reach a certain age, currently around 73 under recent law. The logic is simple: you deducted those contributions and the money grew tax-deferred for decades, so eventually the government wants its tax. RMDs guarantee that traditional balances do not grow tax-free forever.
The starting age has been moving. Legislation in recent years pushed the RMD age from 70½ up to 72 and then to 73, with a further increase scheduled later. Because this number keeps shifting, always confirm the age that applies to your birth year rather than relying on a figure you remember. The account types affected and the precise threshold are the kind of detail worth checking against current IRS guidance.
Which Accounts RMDs Hit, and Which Escape
RMDs apply to traditional IRAs, SEP and SIMPLE IRAs, and traditional 401(k)s and similar workplace plans. The defining feature is that the money went in pre-tax and has never been taxed, so the IRS wants to start collecting.
Roth IRAs have never required distributions during the original owner's lifetime, which is one of their great advantages, and recent law extended that exemption to Roth 401(k)s as well. So Roth money can keep compounding tax-free with no forced withdrawals. There is also a still-working exception for some employer plans: if you are past the RMD age but still employed and not a major owner of the company, you may be able to delay RMDs from that employer's plan until you retire.
| Account | Subject to lifetime RMDs? |
|---|---|
| Traditional IRA | Yes |
| SEP / SIMPLE IRA | Yes |
| Traditional 401(k) | Yes (still-working exception may apply) |
| Roth IRA | No |
| Roth 401(k) | No (recently eliminated) |
How the Amount Is Calculated
Your RMD for the year is your account balance as of the prior December 31 divided by a life-expectancy factor from an IRS table. As you age the factor shrinks, so the required percentage of your balance rises each year. In your early 70s it starts as a relatively small slice and grows from there.
If you have multiple traditional IRAs, you calculate the RMD for each but may take the total from any combination of them. Employer plans like 401(k)s are stricter: each plan's RMD generally must be taken from that specific plan. Every dollar of a traditional-account RMD is taxed as ordinary income in the year you take it, which is what makes RMDs a planning challenge rather than a mere formality.
Want the full framework? This 2-hour ETF course teaches you exactly how to pick, buy, and hold profitable ETFs — from zero to confident investor. Under $15.
The Penalty for Missing One
Skipping or underpaying an RMD has historically triggered one of the harshest penalties in the tax code, assessed on the amount you failed to withdraw. Recent law reduced that penalty and added a lower rate if you correct the shortfall promptly, but it remains painful enough that you do not want to forget. Many custodians will calculate and even automate your RMD, which is the simplest way to avoid a miss.
If you do miss one, take the withdrawal as soon as you notice and file the appropriate form to request a waiver, since the IRS often forgives the penalty for a reasonable, promptly corrected error. Confirm the current penalty rate and waiver process, as both changed in recent legislation.
Important: Don't assume your brokerage will withdraw the RMD automatically unless you have explicitly set it up. The penalty for missing the deadline falls on you, not the custodian.
Ways to Soften the Tax
The best RMD planning happens years before they start. Roth conversions in your 60s shrink the traditional balance that RMDs are calculated on, lowering future required amounts. Drawing down traditional accounts deliberately in low-income early-retirement years does the same thing while filling low brackets you would otherwise waste.
Once RMDs are underway, a qualified charitable distribution lets those who are charitably inclined send IRA money directly to a charity, satisfying the RMD while keeping the amount out of taxable income entirely, which is more tax-efficient than taking the distribution and then donating. And because RMDs raise your taxable income, they can increase the share of Social Security that is taxed and bump your Medicare premiums, so coordinating them with your other income matters.
Tip: If you give to charity anyway, a qualified charitable distribution can satisfy your RMD without adding a cent to your taxable income, which beats taking the RMD and donating separately.
Ready to invest? Open an IBKR account in 10 minutes and get free stock. $0 commissions on US ETFs • Fractional shares from $1 • 150+ global markets.
Frequently Asked Questions
At what age do RMDs start?
Currently around age 73 under recent law, with a further increase scheduled in future years. The age has moved from 70½ to 72 to 73 over the past several years, so confirm the exact age for your birth year against current IRS guidance rather than relying on an older figure.
Do Roth accounts have required minimum distributions?
Roth IRAs have never required distributions during the original owner's lifetime, and recent law eliminated lifetime RMDs for Roth 401(k)s too. That means Roth money can keep compounding tax-free with no forced withdrawals, which is a major planning advantage over traditional accounts.
How is my RMD amount calculated?
Divide your account balance as of the prior December 31 by a life-expectancy factor from an IRS table. The factor shrinks as you age, so the required percentage rises each year. With multiple IRAs you can total them and withdraw from any combination, but employer plans generally require taking each plan's RMD separately.
What happens if I forget to take my RMD?
A penalty applies to the amount you should have withdrawn but didn't. Recent law lowered the penalty and offers a reduced rate if you correct it quickly. Take the missed amount as soon as you notice and file for a waiver; the IRS often forgives a promptly corrected, reasonable error. Verify the current penalty rate.
Further Reading
Free Tools
Alex Harrington
CFA Level II Candidate, Finance & Economics
Alex Harrington is an independent ETF researcher and personal finance writer with over 8 years of experience analyzing exchange-traded funds. A CFA Level II candidate with a background in economics, Alex has reviewed 800+ ETFs and helped thousands of beginners build their first investment portfolios through clear, jargon-free education.
This content is for educational purposes only and does not constitute financial advice. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.