Required minimum distributions (RMDs), explained
For decades the government let your pre-tax retirement money grow untaxed. RMDs are when it collects. Knowing the rules — and planning before they start — is the difference between a manageable tax bill and an avoidable one.
What an RMD is
A required minimum distribution is the minimum you must withdraw each year from most pre-tax retirement accounts — traditional 401(k)s, traditional IRAs, and similar — once you hit the starting age. The amount is your prior year-end balance divided by an IRS life-expectancy factor, and every dollar is taxed as ordinary income. Roth IRAs have no lifetime RMDs for the original owner — one of their quiet advantages.
When they start (and the penalty)
Under current rules, RMDs begin at age 73, scheduled to rise to 75 in 2033. Miss one, and the penalty is steep — historically up to 25% of the shortfall (reduced if corrected promptly). The rules have changed repeatedly, so confirm the current age before you rely on it.
Why RMDs can hurt
If you’ve saved well, a large pre-tax balance can force withdrawals you don’t need — and that extra income can push you into a higher bracket, make more of your Social Security taxable, and raise Medicare premiums (IRMAA). It’s a tax squeeze that arrives right when you’d hoped to coast. This is the case for building tax-free buckets earlier — see tax-free retirement income.
How to soften the hit
- Roth conversions before 73. Converting in lower-income years shrinks the future RMD base. See Roth conversions explained.
- Qualified charitable distributions (QCDs). If charitably inclined, sending RMD money directly to charity satisfies the RMD without adding taxable income.
- Coordinate withdrawals across taxable, tax-deferred, and tax-free accounts to manage your bracket year to year.
If you don’t need the money
Many retirees are forced to take RMDs they don’t actually need to spend. One option is to redeploy those after-tax dollars toward a goal that is tax-efficient — for example, funding a life insurance policy that passes an income-tax-free benefit to heirs, effectively converting a taxable, forced withdrawal into a tax-free legacy. Whether that makes sense depends on your health, goals, and estate plan, so it’s worth modeling with an advisor rather than assuming.
Frequently asked questions
- What is an RMD?
- The minimum you must withdraw yearly from most pre-tax retirement accounts once you reach the starting age, based on your balance and an IRS factor, taxed as ordinary income.
- At what age do RMDs start?
- Age 73 under current rules, rising to 75 in 2033. Roth IRAs have no lifetime RMDs for the original owner. Confirm the current age, as it has changed.
- How can I reduce RMDs?
- Roth conversions before they start, qualified charitable distributions, and coordinating withdrawals. RMDs you don't need can also fund goals like a life insurance legacy.