What Are Required Minimum Distributions (RMDs) and How Do You Manage Them?

A required minimum distribution (RMD) is the amount the IRS makes you withdraw from your tax-deferred retirement accounts each year, starting at age 73, and pay ordinary income tax on, whether you need the money or not. After 73, you can manage RMDs with charitable distributions and by reinvesting what you don’t spend. The biggest lever, though, only works before 73: shrinking your tax-deferred balance through measured Roth conversions.

The short version

• RMDs now start at 73, scheduled to rise to 75 in 2033.
• The amount is your prior year-end balance divided by an IRS life-expectancy factor, roughly 3.8% at 73.
• Roth IRAs, and as of 2024 Roth 401(k)s, have no lifetime RMDs.
• The missed-RMD penalty is 25%, dropping to 10% if corrected quickly.
• Before 73, measured Roth conversions shrink every future RMD. After 73, charitable distributions and reinvesting are your levers.

A client of mine retired at 62 and spent the next decade feeling like a genius.

He and his wife lived on savings and Social Security. Their tax bill most years was almost nothing. He’d tell me, half joking, that retirement was the best tax shelter he ever found.

Then he turned 73.

That year, the IRS required him to start pulling money out of four different retirement accounts, whether he needed it or not. The withdrawals stacked on top of Social Security, pushed more of his benefits into taxable territory, and landed the two of them in a bracket they hadn’t seen since he was working.

Nothing went wrong, exactly. Nobody made a mistake. That’s just what happens when the RMD time bomb goes off without a plan. And the frustrating part is that he had ten low-tax years where we could have defused most of it.

So let’s walk through what RMDs are, what the rules look like now, and what you can actually do about them.

What is a required minimum distribution?

An RMD is the minimum amount the tax code requires you to withdraw from your tax-deferred retirement accounts each year once you reach RMD age, with ordinary income tax due on every dollar. Why does it exist? Because of a deal you made decades ago.

All those years you contributed to a traditional IRA or 401(k), you made a deal with the IRS. You skip the taxes now, and they collect later.

A required minimum distribution is the IRS showing up to collect. Once you reach a certain age, you must withdraw a minimum amount from your tax-deferred accounts every year and pay ordinary income tax on it. Not because you need the money. Because the deal says so.

That age is now 73, and it’s scheduled to rise to 75 in 2033 under the SECURE 2.0 law. If you’ve been carrying “70 and a half” or “72” in your head, that’s an old map. The rules have moved twice in the last few years.

Your first RMD has a grace period: you can delay it until April 1 of the year after you turn 73. Every RMD after that is due by December 31. Careful with that grace period, though. Use it, and you’ll take two distributions in the same tax year, which can pile up exactly the bracket problem you’re trying to avoid.

The amount is a simple formula: your account balance on December 31 of the prior year, divided by a life-expectancy factor from the IRS tables. At 73, that factor is about 26.5, which works out to roughly 3.8% of the account. The percentage creeps up every year after that.

Which accounts have RMDs, and which don’t?

RMDs apply to traditional IRAs, 401(k)s, 403(b)s, SEP and SIMPLE IRAs, and most other tax-deferred accounts. The two exceptions are Roth IRAs and Roth 401(k)s, and one of those is a recent change.

Roth IRAs have never had RMDs during the owner’s lifetime. And as of 2024, Roth 401(k)s don’t either. That’s newer than most people realize. For years, the standard advice was to roll your Roth 401(k) into a Roth IRA just to dodge RMDs. That chore is gone.

One more trap while we’re here: inherited accounts have their own RMD rules, and they can apply even if you’re 45. If you’ve inherited an IRA, that’s its own conversation, and it’s worth having sooner rather than later.

Why is the RMD tax hit bigger than it looks?

Because RMD income doesn’t arrive alone. Every dollar is ordinary income, and in retirement it lands in a system where several tax thresholds are connected to each other.

Say your other taxable income is $50,000 and your RMD is $20,000. You’re now filing on $70,000, and that extra income doesn’t arrive alone.

It can drag more of your Social Security into taxation. Two years later, it can raise your Medicare premiums through the income surcharge. One required withdrawal, three separate bills.

This is what I mean when I say the rules change on the way down. While you were climbing, more income was purely good news. In the distribution years, every extra dollar of income touches a system of thresholds, and they’re all connected.

Want to see the size of your own future RMDs? We run those numbers with you in a retirement roadmap conversation.

What is the penalty for missing an RMD?

The penalty is 25% of whatever you failed to withdraw, and if you fix the mistake within the correction window, generally two years, it drops to 10%. The old penalty was an infamous 50%. Better now, but still one of the most expensive mistakes in the tax code.

Set up automatic distributions in December and this whole category of risk disappears.

Also know the aggregation rule: you can total your IRA RMDs and take the whole amount from one IRA, but 401(k)s don’t work that way. Each 401(k) needs its own separate withdrawal. People with old employer plans scattered across three jobs miss this one all the time.

How do you manage RMDs, or shrink them before they start?

After 73, you have two good levers: qualified charitable distributions and reinvesting withdrawals you don’t spend. Before 73, you have the biggest one: shrinking the tax-deferred balance itself. Here’s how each works.

If you give to your church or a charity anyway, a qualified charitable distribution sends money straight from your IRA to the charity. It counts toward your RMD and never touches your taxable income. The annual limit is $108,000 per person in 2025, indexed each year.

If you don’t need the money to live on, an RMD isn’t a spending order. It’s only a withdrawal order. Reinvest it in a brokerage account and let it keep working, with future growth taxed at capital gains rates instead of ordinary income rates.

But the biggest lever only works before 73. The size of every future RMD depends on the size of your tax-deferred balance. Shrink the balance during your low-tax years, usually through measured Roth conversions between retirement and RMD age, and you shrink every RMD for the rest of your life. That’s the ten-year window my client had, and the one I’d hate to see you give back.

Frequently asked questions

At what age do RMDs start?

Age 73 for anyone reaching RMD age now, scheduled to rise to 75 in 2033. If you have “70 and a half” or “72” in your head, those are the old rules.

Do Roth accounts have RMDs?

Roth IRAs never have during the owner’s lifetime, and as of 2024 Roth 401(k)s don’t either. Inherited Roth accounts follow their own rules, so check those separately.

Can I take all my RMDs from one account?

For IRAs, yes: total the required amounts and withdraw from a single IRA. 401(k)s don’t aggregate. Each one needs its own separate withdrawal.

How do I reduce future RMDs?

Shrink the tax-deferred balance before 73, usually through measured Roth conversions during your low-tax years. After 73, qualified charitable distributions keep RMD dollars out of your taxable income.

The starting point is knowing where your money actually sits. Start your retirement roadmap and we lay out your tax-deferred, tax-free, and taxable dollars side by side. You’ll see the size of your own time bomb, and how long you have to defuse it.

And to say it plainly: this is education, not tax advice. The rules above have exceptions, and your numbers are your own, so talk with your tax professional before you act.

To see how RMD planning fits into your bigger tax picture, explore the tax planning page.