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Learn the fundamentals of RMDs to navigate your retirement savings wisely and confidently.

Required Minimum Distribution (RMDs) Explained

Disclaimer: This website and its content are for informational purposes only and is not financial advice.

The Fundamentals of RMDs

As you approach retirement, or if you are already enjoying your golden years, understanding the concept of required minimum distribution, or RMDs, becomes incredibly important.

These are not simply suggestions, but rather mandated annual withdrawals from your tax-deferred retirement accounts. The Internal Revenue Service (IRS) established these rules to ensure that taxes are eventually paid on funds that have grown tax-deferred over many years.

Knowing the ins and outs of your required minimum distribution can help you navigate your finances effectively and avoid potential penalties.

When Do Your RMDs Begin?

Generally, you must begin taking your required minimum distribution from your traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored retirement plans, such as 401(k)s, 403(b)s, and 457(b) plans, once you reach a certain age. The age at which your required minimum distribution officially begins has seen some changes in recent years due to legislative updates.

For individuals who turned 73 in 2023 or later, the age for starting your required minimum distribution is now 73. For those born on or after January 1, 1960, the age will shift to 75 in 2033. It's always a good practice to confirm the exact age that applies to your situation.

Your first required minimum distribution can be taken by April 1 of the year following the calendar year in which you reach the applicable age. However, it's crucial to note that if you delay your first required minimum distribution until that April 1 deadline, you will then have to take your second required minimum distribution by December 31 of the same year.

This could result in two taxable withdrawals in one year, potentially pushing you into a higher tax bracket. For all subsequent years, your required minimum distribution must be taken by December 31.

Calculating Your Required Minimum Distribution

Calculating your required minimum distribution is typically based on your account balance as of December 31 of the previous year and a life expectancy factor provided by the IRS. The IRS publishes tables, such as the Uniform Lifetime Table, to help determine this factor.

Most retirement account custodians or plan administrators will calculate the required minimum distribution amount for you and may even notify you of the amount. However, it remains your responsibility to ensure the correct required minimum distribution is taken.

While you must calculate the required minimum distribution separately for each traditional IRA you own, you have the flexibility to withdraw the total required minimum distribution amount from one or a combination of your traditional IRAs.

For employer-sponsored plans like 401(k)s, the required minimum distribution must generally be taken from each separate plan.

Roth IRAs and RMDs

It is important to remember that Roth IRAs are generally not subject to required minimum distribution rules during the original owner's lifetime. This is a key difference from traditional tax-deferred accounts. However, if you inherit a Roth IRA, you may have required minimum distribution obligations.

Updated May 27th, 2025

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Penalties for Not Taking Your RMD

Failing to take your required minimum distribution by the deadline can lead to significant penalties from the IRS. The penalty for not withdrawing the full required minimum distribution amount is currently 25% of the amount not distributed.

This penalty can be reduced to 10% if the mistake is corrected within a two-year window and certain conditions are met. Given these substantial penalties, it's paramount to understand your obligations and ensure you meet the required minimum distribution deadlines.

Strategies for Your RMD

While taking your required minimum distribution is a requirement, you do have options for how you use those funds. If you need the money for living expenses, it serves as a natural source of income. If you don't immediately need the funds, you might consider reinvesting them in a taxable brokerage account to allow for continued growth.

Another strategy, if you are charitably inclined and age 70½ or older, is to make a qualified charitable distribution (QCD) directly from your IRA to a qualified charity. A QCD can count towards your required minimum distribution and can be excluded from your taxable income, offering a potential tax advantage.

Understanding your required minimum distribution is an integral part of effective retirement planning. By staying informed about the rules, calculating your amounts accurately, and exploring potential strategies, you can manage your retirement savings wisely and ensure a smoother financial journey through your later years.

Consulting with a qualified financial advisor or tax professional can provide personalized guidance tailored to your specific circumstances and help you navigate the complexities of your required minimum distribution with confidence.

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