Required minimum distributions (RMDs) and inherited IRA rules
For decades the government let your pre-tax retirement money grow untaxed. RMDs are when it collects — first from you, and then, under the 10-year rule, from your heirs. Knowing the rules for both stages, 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.
How your RMD is calculated — with a number
Take your prior year-end balance and divide by the IRS life-expectancy factor for your age (the Uniform Lifetime Table). At age 73 the factor is 26.5. So a $1,000,000 traditional IRA produces a first RMD of about $1,000,000 ÷ 26.5 ≈ $37,700, all taxable as ordinary income. The factor shrinks each year as you age, so the required percentage — and usually the dollar amount — climbs over time. That rising curve is why a big pre-tax balance can push your taxable income higher every year of retirement.
Two timing traps. Your first RMD can be delayed to April 1 of the year after you turn 73 — but then you take two RMDs in that year, stacking the income; taking the first on time usually avoids the pile-up. And if you're still working past 73 and don't own 5%+ of the company, you can often delay RMDs from that employer's 401(k) (but not from IRAs) until you retire.
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.
What you do with your own RMDs also shapes what happens next: whatever is still in a traditional IRA when you die passes to your heirs — and so does the tax that was deferred on it.
When the IRA is inherited: the 10-year rule
Leaving a big IRA to your kids sounds like a gift — but a 2019 law change turned it into a compressed tax bill for most heirs. For most non-spouse beneficiaries who inherit after 2019, the entire IRA must be emptied within 10 years of the owner’s death. With a traditional (pre-tax) IRA, every withdrawal is taxed as ordinary income to the heir — so a large balance can stack on top of a working-age child’s salary and land in high tax brackets, all within a decade. The old “stretch IRA” that let heirs spread withdrawals over their lifetime is gone for most.
Spouse vs non-spouse beneficiaries
- A surviving spouse has the most flexibility — generally able to treat the IRA as their own and follow the normal RMD timing described above.
- Non-spouse heirs (adult children, etc.) usually face the 10-year rule, sometimes with annual withdrawals required within that window if the original owner had already started RMDs.
- Certain eligible beneficiaries (minor children, disabled or chronically ill individuals) get special treatment.
The details are intricate and have been clarified repeatedly by the IRS — confirm current rules before acting.
The trap most heirs miss: annual RMDs inside the 10 years
Many people assume the 10-year rule means "withdraw nothing, then empty it in year 10." Not always. Under the IRS's finalized rules, if the original owner had already started their own RMDs before dying, most non-spouse heirs must take an annual RMD in years 1–9 and empty the account by year 10. The IRS waived the penalty for missed annual RMDs in the confusing transition years, but that relief has ended, so getting this right now matters.
A planning tip either way: even when annual withdrawals aren't required, deliberately waiting until year 10 to take everything usually backfires — it dumps the entire balance into one year's income and spikes your bracket. Spreading withdrawals more evenly across the decade, and taking more in your own lower-income years, typically keeps the lifetime tax lower.
The tax problem for heirs, in plain terms
A traditional IRA is an IOU to the IRS: the tax was deferred, not forgiven. When your heirs withdraw it, they pay the tax — often at their peak earning years. A $500,000 IRA can deliver far less than $500,000 to a child after a decade of taxable withdrawals. Roth IRAs are the exception: inherited Roth withdrawals are generally tax-free (though usually still subject to the 10-year emptying rule).
The tax-free alternative: Roth and life insurance
Many retirees are forced to take RMDs they don’t actually need to spend. If leaving money to heirs is the goal, there are cleaner routes than handing them a taxable IRA:
- Roth conversions during your lifetime — you pay the tax in controlled, lower-bracket years, and heirs inherit tax-free. The same move shrinks your own future RMDs. See Roth conversions explained.
- Life insurance. A death benefit is generally income-tax-free and pays immediately. A common strategy: redeploy unneeded, after-tax RMD dollars (or other IRA dollars) to fund a life insurance policy, effectively converting a taxable, forced withdrawal into a tax-free legacy — sometimes a larger net amount for heirs. It also gives liquidity for any estate costs.
This is where the two halves of this guide meet. The same moves that ease your own RMDs — converting to Roth in lower-income years, or putting unneeded withdrawals to work — also decide whether your heirs inherit a compressed, taxable 10-year withdrawal schedule or a cleaner, tax-free sum. Planning for one without the other leaves money on the table.
Whether this beats simply leaving the IRA depends on your health, goals, estate plan, the heirs’ tax brackets, and the policy’s cost — so model it honestly with an advisor rather than assuming.
Frequently asked questions
- What is a required minimum distribution?
- The minimum you must withdraw yearly from most pre-tax retirement accounts (traditional IRAs, 401(k)s, and similar) once you reach the starting age, based on your balance and an IRS life-expectancy 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 the rules have changed several times.
- How is my RMD amount calculated?
- Divide your prior year-end balance by the IRS Uniform Lifetime Table factor for your age. At 73 the factor is 26.5, so a $1,000,000 IRA gives a first RMD of about $37,700. The factor shrinks each year, so the required amount generally rises with age.
- How can I reduce my RMDs?
- Roth conversions in lower-income years before RMDs start, qualified charitable distributions, and coordinating withdrawals across account types. RMDs you don't need can also fund other goals, such as life insurance for heirs.
- What is the 10-year rule for inherited IRAs?
- Most non-spouse heirs who inherited after 2019 must empty the inherited IRA within 10 years of the original owner's death. Traditional IRA withdrawals are taxed as ordinary income, compressing the tax into a decade.
- Do I have to take annual withdrawals during the 10 years?
- Often yes. If the original owner had already started their own RMDs, most non-spouse heirs must take an annual RMD in years 1–9 and still empty the account by year 10. Even when annual withdrawals aren't required, spreading them out usually beats dumping the whole balance into year 10.
- Are inherited IRA withdrawals taxed?
- Yes for traditional IRAs (ordinary income to the heir). Inherited Roth withdrawals are generally tax-free, though usually still subject to the 10-year rule for non-spouse heirs.
- How can I leave money to heirs without the tax?
- Roth conversions during your life, so heirs inherit tax-free Roth money, or life insurance, whose death benefit is generally income-tax-free. Some people replace a traditional IRA with a policy for a cleaner inheritance.