Sooner or later, the IRS wants its cut of every dollar you sheltered in a traditional 401(k) or IRA. That is the whole point of required minimum distributions, or RMDs: once you reach age 73 under current law, you must start pulling money out of tax-deferred retirement accounts each year and paying ordinary income tax on it, whether you need the money or not.
The rules changed twice in recent years, so plenty of retirees are working from outdated information. The starting age used to be 70 and a half, then 72, and the SECURE 2.0 law moved it to 73. Under that same law, the age is scheduled to rise again, to 75, for people born in 1960 or later. Getting the year wrong, or the math wrong, carries a real penalty, so it is worth walking through exactly how this works. The IRS lays out the framework on its RMD topics page.
Which accounts have RMDs, and which do not
RMDs apply to traditional IRAs, SEP and SIMPLE IRAs, and workplace plans like 401(k)s, 403(b)s, and 457(b)s. Roth IRAs are the big exception: the original owner never has to take a lifetime RMD. And since 2024, designated Roth accounts inside a 401(k) or 403(b) are also free of lifetime RMDs, which removed the old incentive to roll Roth 401(k) money into a Roth IRA just to dodge the requirement. Inherited accounts follow their own, stricter distribution rules and deserve their own conversation.
One more exception: if you are still working past 73 and do not own more than 5 percent of the company, most workplace plans let you delay RMDs from that employer’s plan until you actually retire. That break does not extend to your IRAs or to old 401(k)s at previous employers.
The deadline, and the April 1 trap
Your very first RMD gets a grace period: you can take it as late as April 1 of the year after the year you turn 73. Every RMD after that is due by December 31. Here is the trap. If you use the grace period, you will take two taxable distributions in the same calendar year, the delayed first one by April 1 and the second one by December 31. Stacking both into one year can push you into a higher bracket, raise taxes on your Social Security benefits, and trigger higher Medicare premiums two years later. For many people, taking the first RMD in the year they turn 73 is the cleaner move, but it depends on your income picture in each year.
How the math actually works
The formula is simpler than most people expect. Take your account balance as of December 31 of the prior year and divide it by a life-expectancy factor from the IRS Uniform Lifetime Table, published in Publication 590-B. At age 73, that factor is 26.5. So a retiree with $500,000 in a traditional IRA at the end of last year must withdraw about $18,868 this year: $500,000 divided by 26.5.
The factor shrinks each year as you age, which means the required percentage grows. At 73 you are withdrawing roughly 3.8 percent of the balance; by your late 80s the required slice is considerably larger. A different table with bigger factors, and therefore smaller RMDs, applies if your spouse is your sole beneficiary and is more than ten years younger than you.
If you have several traditional IRAs, calculate the RMD for each but feel free to take the combined total from any one of them. Workplace plans do not allow that aggregation: a 401(k) RMD must come out of that specific 401(k). Your IRA custodian will usually calculate the number for you and report to the IRS that an RMD was due, so this is not a requirement you can quietly skip.
The penalty for missing it
Fall short and the IRS charges an excise tax of 25 percent of the amount you failed to withdraw. That is painful but gentler than the old 50 percent penalty, and SECURE 2.0 added a second break: if you correct the shortfall within the allowed correction window, generally about two years, the penalty drops to 10 percent. The IRS can also waive the penalty entirely for reasonable errors if you take the missed distribution and file Form 5329 with an explanation. The agency’s RMD FAQ page covers the correction process.
Ways to soften the tax hit
You cannot avoid an RMD, but you can be smart about it. The withdrawal does not have to be spent; you can move the after-tax proceeds straight into a regular brokerage account and stay invested. Retirees who give to charity have a better option: a qualified charitable distribution sends money directly from your IRA to a charity, counts toward your RMD, and never shows up in your taxable income. The annual QCD cap is indexed for inflation and listed in Publication 590-B.
Withholding is the other lever. You can have federal tax withheld from the distribution itself, which many retirees use as a substitute for quarterly estimated payments. And if you are in your 60s now, remember that every dollar you convert to a Roth before 73 is a dollar that will never face an RMD. The people who fare best with this rule are the ones who see it coming a decade out and shape their balances accordingly.
