Understanding Required Minimum Distributions (RMDs)

Once you reach a certain age, the IRS requires you to start withdrawing a minimum amount each year from most tax-deferred retirement accounts, traditional IRAs, 401(k)s, and similar accounts. These withdrawals are called Required Minimum Distributions, or RMDs.

When do RMDs start?

The RMD starting age has changed in recent years due to legislation, and it's worth confirming your exact starting age based on your birth year rather than relying on an old rule of thumb. Missing your first RMD deadline can trigger a meaningful penalty.

How is the amount calculated?

Your RMD is calculated each year based on your account balance at the end of the prior year, divided by a life expectancy factor published by the IRS. The amount changes annually as your balance and factor change, it isn't a fixed dollar amount or percentage.

What counts as income

RMDs are treated as taxable income in the year they're withdrawn. For some retirees, this pushes them into a higher tax bracket or affects Medicare premium surcharges (IRMAA). Planning around this in advance, sometimes years in advance through Roth conversions, can reduce the impact.

The penalty for missing one

Failing to take your full RMD by the deadline results in an IRS excise tax on the amount not withdrawn. It's one of the more expensive, and avoidable, mistakes in retirement account management, which is why we track RMD obligations as a standing part of every applicable client's plan.