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Published: March 10, 2025
Modified: March 12, 2025
Understanding Required Minimum Distributions (RMDs) is a critical aspect of retirement planning, ensuring that individuals begin withdrawing from tax-advantaged retirement accounts at a specific age. Whether you’re approaching retirement or already withdrawing, understanding RMD rules can help you stay compliant and manage your tax liabilities effectively.
What are RMDs?
Each year, you must withdraw a specific amount from tax-deferred retirement accounts like traditional IRAs and 401(k)s. The IRS requires these withdrawals to ensure that funds contributed pre-tax are eventually taxed.
The amount you need to withdraw is determined by dividing your retirement account balance by a life expectancy factor, found in IRS tables. Failure to take an RMD results in a hefty tax penalty—as much as 25% of the amount that should have been withdrawn. Understanding how RMDs work is crucial to avoiding unnecessary penalties.
RMD Rules by Account Type
- Traditional IRAs and 401(k)s—RMDs are required once you reach the required starting age.
- Roth IRAs—No RMDs required during your lifetime.
- Roth 401(k)s—RMDs were required before 2024 but are now eliminated under SECURE Act 2.0.
- 403(b) and Profit-Sharing Plans—Have the same RMD rules as 401(k)s, though some exceptions apply.
When Do RMDs Start?
The age at which you must start taking RMDs depends on your birth year:
- Born before July 1, 1949—RMDs started at 70½.
- Born between July 1, 1949 and December 31, 1950—RMDs start at 72 (per the SECURE Act 2019).
- Born between 1951 and 1959—RMDs start at 73 (per the SECURE Act 2.0).
- Born in 1960 or later—RMDs will start at 75, beginning in 2033.
You can take your first RMD anytime during the year you reach your required RMD age or delay it until April 1 of the following year. However, delaying means you must take two RMDs in that following year, which could push you into a higher tax bracket.
Why RMDs Matter
RMDs increase taxable income, potentially moving you into a higher tax bracket or affecting your Medicare premiums. Planning ahead ensures you can:
- Minimize unnecessary taxes.
- Reduce Medicare surcharges (IRMAA fees).
- Avoid penalties for missed withdrawals.
Next: How to Calculate Your Required Minimum Distributions (RMDs)
Now that you understand the basics of RMDs, the next step is to learn how to calculate them correctly to avoid penalties and ensure compliance.
Read Next: How to Calculate Your Required Minimum Distributions (RMDs) ➡