Required Minimum Distributions (RMDs): When They Start, How They're Calculated, and the Penalty

Required minimum distributions are the amounts the IRS makes you withdraw each year from tax-deferred retirement accounts, starting at age 73 (rising to 75 in 2033). After decades of letting your money grow tax-deferred, the government eventually wants its tax, so it sets a minimum you must take out each year and pay income tax on. You can always withdraw more; you just cannot withdraw less.

I am not at RMD age yet, but it is firmly on my radar, because the rules are unforgiving and the penalty for slipping up used to be brutal. The good news is that the mechanics are simpler than the jargon suggests, and once you understand them you can plan around them. Here is the plain-English version, checked by a CERTIFIED FINANCIAL PLANNER, and how it fits into the wider job of accessing your retirement savings.

When RMDs must begin

Your first RMD is due for the year you turn 73, and the starting age rises to 75 in 2033 under the SECURE 2.0 Act. That starting age has moved up over the years, which is why old guides may say 70½ or 72; for anyone reaching the age now, 73 is the number.

The deadlines have one quirk worth knowing. For your first RMD only, you can delay it until April 1 of the year after you turn 73. But if you do, you will take two RMDs in that single year, which can spike your taxable income; many people choose to take the first one on time instead. Every RMD after the first is due by December 31 each year.

Which accounts have RMDs (and which don’t)

RMDs apply to tax-deferred accounts, not to Roth IRAs you own. The rule covers traditional IRAs, traditional 401(k)s, 403(b)s, 457(b)s, the TSP, and SEP and SIMPLE IRAs. The logic is simple: this money went in pre-tax and has never been taxed, so the IRS wants it withdrawn and taxed within your lifetime.

The big exception is the Roth IRA, which has no RMDs for the original owner. That is one of its quiet advantages and a reason some people convert traditional money to Roth over time. Roth 401(k)s no longer require lifetime RMDs either, under recent rules. This is part of the broader traditional vs Roth trade-off. Note that inherited accounts follow different rules, which we cover in inherited retirement accounts.

How RMDs are calculated from IRS tables

Each year’s RMD is your prior-year-end balance divided by a life-expectancy factor from an IRS table. Take the account’s value on December 31 of the previous year, look up the factor for your age in the IRS Uniform Lifetime Table, and divide. The factor shrinks as you age, so the percentage you must withdraw climbs over time.

A worked example makes it concrete. If your traditional IRA was worth $500,000 at the end of last year and the table factor for your age is about 26.5, your RMD is roughly $18,868 ($500,000 divided by 26.5), or about 3.8% of the balance. A decade later the same balance would require a larger percentage, because the factor is smaller.

One practical rule: if you have several IRAs, you can add up the total required amount and take it from any one or combination of them. But each 401(k) generally must be calculated and withdrawn separately, which is one more reason people consolidate old plans through a rollover.

The penalty for missing an RMD

Miss an RMD, or take too little, and the IRS charges an excise tax of 25% of the shortfall. That is the amount you should have withdrawn but did not, not 25% of the whole account, but it is still a heavy penalty. The figure used to be a striking 50% before SECURE 2.0 reduced it.

There is relief built in. If you correct the shortfall promptly, generally within a two-year window, and file the right form, the penalty drops to 10%. You can also ask the IRS to waive it for reasonable cause. Still, the cleanest approach is to take the full amount on time; many people set up automatic RMD withdrawals with their provider so they never miss a year. This is exactly the kind of housekeeping covered in reviewing your retirement plan.

RMDs and your tax bill

Because RMDs from traditional accounts are taxed as ordinary income, a large RMD can ripple through your whole tax picture. A big mandatory withdrawal can push you into a higher bracket, increase how much of your Social Security becomes taxable (up to 85% of the benefit can be taxed depending on income), and raise your Medicare premiums through the income-related surcharge known as IRMAA, which is based on income from two years prior.

This is why RMDs are a planning issue, not just a paperwork chore. Some people deliberately draw down traditional accounts, or do Roth conversions, in the lower-income years between retiring and 73 to shrink future RMDs. We connect these threads in taxes in retirement and retirement withdrawal strategies.

Where RMDs fit in your plan

Think of RMDs as the back end of the same system you spent decades funding. They sit alongside the penalty-free window that opens at 59½ and your decision on when to claim Social Security, and together these three set the shape of your retirement income and tax bill. Understanding RMDs early gives you years to plan around them rather than being surprised at 73.

This is general information, not personalized advice, and the tables and ages can change, so confirm the current rules and your own numbers at IRS.gov. Your accounts are invested, so balances rise and fall, which changes the RMD each year. For decisions like Roth conversions or smoothing your lifetime tax bill, a fiduciary advisor or tax professional can be well worth the cost, as we discuss in choosing a financial advisor.