RMD (Required Minimum Distribution)

RMDs force you to start withdrawing (and paying taxes on) pre-tax retirement accounts at age 73. The IRS wants their tax revenue—you can't defer forever.

What Accounts Require RMDs:

• Traditional IRAs
• Traditional 401(k)s, 403(b)s
• SEP IRAs, SIMPLE IRAs
• Inherited IRAs (even Roth)

What's EXEMPT:

• Roth IRAs (while you're alive)
• Current employer 401(k) (if still working)

When RMDs Start:

• Age 73 (as of 2025 under SECURE 2.0 Act)
• Previously was 72, then 70.5
• Will increase to age 75 in 2033

How Much You Must Withdraw: IRS divides your account balance by "life expectancy factor" from their tables.

Example (Age 73):

• IRA balance: $500,000
• Life expectancy factor: 26.5
• RMD: $500,000 ÷ 26.5 = $18,868

The factor decreases each year, so RMD percentage increases as you age.

Penalties for Missing RMDs:

• 25% penalty on amount not withdrawn (was 50% before 2023)
• Still must take the distribution AND pay the penalty
• Example: Miss $20,000 RMD = $5,000 penalty + owe taxes on $20,000

Strategies to Minimize RMDs:

1. Roth Conversions Before Age 73: Convert Traditional IRA to Roth in low-income years (pay taxes now at lower rate, avoid RMDs later)

2. Qualified Charitable Distributions (QCD): After age 70.5, can donate up to $105,000/year directly from IRA to charity—counts toward RMD but isn't taxable income

3. Delay First RMD: You can delay first RMD until April 1 of the year after turning 73 (but then you take two RMDs that year)

4. Still Working: Keep money in current employer 401(k) to avoid RMDs

The Tax Bomb: Large RMDs can push you into high brackets, trigger Medicare premium surcharges, and make Social Security taxable. Plan ahead with Roth conversions.