Required Minimum Distributions: Rules, Strategies, and Common Mistakes

Required Minimum Distributions, or RMDs, are mandatory annual withdrawals from Traditional IRAs, 401(k)s, and most other tax-deferred retirement accounts. The government allows your savings to grow tax-deferred for decades, but eventually requires you to start taking money out and paying taxes on it. Under SECURE 2.0, RMDs now begin at age 73, and will increase to age 75 starting in 2033.

How RMDs Are Calculated

Your annual RMD is determined by dividing the prior year-end balance of each applicable account by a life expectancy factor from IRS tables. The Uniform Lifetime Table is used for most account owners, while a different table applies if your sole beneficiary is a spouse more than ten years younger. As you age, the divisor decreases, meaning your required withdrawal percentage increases each year.

Strategies to Reduce the RMD Tax Burden

• Roth conversions before RMDs begin — reduces the traditional IRA balance and future required distributions
• Qualified Charitable Distributions (QCDs) — donate up to $105,000 directly from your IRA to charity, satisfying your RMD without adding to taxable income
• Strategic timing of your first RMD — you can delay your first distribution to April 1 of the year after you turn 73, but that means two RMDs in one year
• Coordinate RMDs with Social Security claiming and other income to manage tax brackets

The Cost of Getting It Wrong

Missing an RMD triggers a penalty of 25% of the amount that should have been withdrawn (reduced from the previous 50% penalty under SECURE 2.0). If corrected within two years, the penalty drops to 10%. Beyond the penalty, RMDs that push you into a higher tax bracket can also increase your Medicare premiums through IRMAA surcharges. Proactive planning with a financial advisor ensures you meet deadlines, minimize taxes, and keep your overall retirement income strategy on track.