Decades of deferred tax eventually come due. From a set age the withdrawals are no longer optional — and the amount rises every year.
The deal has a second half
Traditional retirement accounts let you deduct contributions and defer tax on growth for decades. In exchange, the government eventually requires you to take the money out and pay the tax.
That requirement is the required minimum distribution. From a set age you must withdraw at least a calculated amount from traditional accounts each year, whether or not you need it, and it is taxed as ordinary income.
Which accounts
- Subject to RMDs: traditional IRAs, SEP and SIMPLE IRAs, and traditional 401(k), 403(b) and 457 plans.
- Not subject during your lifetime: Roth IRAs. Roth balances in employer plans have also been brought into line in recent years, though rules here have changed — worth verifying rather than assuming.
- Still working? If you are employed past the RMD age and do not own a large stake in the company, you may be able to delay distributions from that employer's plan. It does not apply to IRAs.
The starting age has been raised more than once by recent legislation and depends on your birth year. Check the current age at irs.gov rather than trusting any figure you remember.
How the amount is worked out
The factor comes from IRS tables based on your age, and it shrinks each year — so the percentage you must withdraw rises as you get older, even if the balance falls.
A separate table applies if your sole beneficiary is a spouse more than ten years younger, which produces smaller required withdrawals.
Failing to take a full RMD triggers an excise tax on the shortfall. Recent legislation reduced it substantially from the old rate and reduces it further if corrected promptly — but it remains one of the more painful penalties in the code, and it applies to an oversight rather than to any wrongdoing. Most custodians will calculate and even automate the withdrawal; switching that on removes the risk entirely.
A rule that catches people: aggregation
If you have several IRAs, you calculate the RMD for each but may take the total from any one of them.
401(k)s do not work that way. Each plan's RMD must come from that plan. Someone with three old 401(k)s must take three separate distributions — which is one good reason to consolidate old accounts before reaching RMD age. See how rollovers work.
Planning around them
The problem RMDs create is a tax spike: forced income arriving on top of Social Security, potentially pushing you into a higher bracket and affecting how much of your benefit is taxable.
Two approaches are worth understanding well before the age arrives.
Roth conversions in the low-income years between retiring and starting Social Security. You move money from traditional to Roth, pay tax at today's rate, and permanently remove that balance from future RMDs. Done across several years it can substantially flatten a lifetime tax bill.
Qualified charitable distributions. From a set age you can send money directly from an IRA to a qualifying charity. It counts towards your RMD and is excluded from your income entirely — which is better than taking the distribution and deducting the gift, particularly if you do not itemise.
Two things people get wrong
- You do not have to spend it. You must withdraw it and pay the tax. The remainder can go straight into a taxable brokerage account and stay invested.
- The first year has a quirk. The first RMD may generally be delayed into the following April — but doing so means taking two in one calendar year, which can be the opposite of helpful for your bracket.
This is educational content, not tax advice. Ages, penalties and rules in this area have changed repeatedly in recent years; confirm current specifics at irs.gov or with a professional.