Required Minimum Distribution (RMD)

Required Minimum Distributions force you to start withdrawing from tax-deferred retirement accounts — Traditional IRAs, 401(k)s, 403(b)s — once you reach a set age, so the IRS can finally start collecting tax on money that's been growing tax-deferred for decades. SECURE 2.0 raised the starting age to 73 for those turning 72 after 2022, with a further increase to 75 scheduled for 2033. Roth IRAs are exempt from RMDs during the original owner's lifetime, since Roth contributions were already taxed.

Each year, your custodian, or you using the IRS Uniform Lifetime Table, divides your account's prior-year-end balance by a life-expectancy factor to get that year's required withdrawal — a 73-year-old with a $500,000 IRA using a factor of 26.5 would owe an RMD of about $18,868. If you have multiple Traditional IRAs, you can total the RMDs and take them from any combination of those accounts, but 401(k) RMDs generally must be taken separately from each plan.

Missing your full RMD triggers a steep penalty — 25% of the shortfall, reduced from the historical 50% by SECURE 2.0, and cut further to 10% if you correct the mistake within two years. Inherited retirement accounts follow different, often stricter RMD rules than accounts you own yourself, and Roth 401(k)s no longer carry lifetime RMDs either, after a recent law change aligned their treatment with Roth IRAs. People sometimes forget that a Qualified Charitable Distribution can satisfy an RMD while excluding the withdrawn amount from taxable income entirely, a useful move for retirees who don't need the cash.