Understanding Required Minimum Distributions (RMDs)

30 October 2025

Ah, retirement planning—the thing that dancing-in-the-sand beach commercials make look so easy... until you run into something called a Required Minimum Distribution (RMD). If you're scratching your head thinking, “Required what now?”—you’re not alone. RMDs might sound like government-speak for something terribly boring, but they’re actually kind of like a ticking tax time bomb if you don’t know how to handle them.

So grab your favorite cup of coffee (or your retirement dream piña colada), get comfy, and let’s break down RMDs in normal-human speak.

What Exactly Is an RMD?

Let’s start with the basics. A Required Minimum Distribution, or RMD, is the minimum amount Uncle Sam tells you that you must withdraw annually from certain retirement accounts, starting at a certain age. Think of it as the IRS tapping you on the shoulder and saying, “Hey buddy, you’ve had that tax-deferred retirement money long enough—it’s time we get our piece.”

It’s not a suggestion. It’s a requirement. Hence the “Required” part. And failing to take your RMD can result in a penalty so steep, it makes stepping on LEGO bricks feel pleasant in comparison.

Why Do RMDs Exist?

Great question! The government gives you amazing tax advantages when you save for retirement in certain accounts like a Traditional IRA or 401(k). Your money grows tax-deferred, which means you don’t pay taxes on it as it grows.

But here’s the catch: the tax man eventually wants his share. RMDs are the IRS’s way of saying, “Time to pay the piper, old sport.”

In other words, RMDs ensure that people don’t just leave money in these accounts forever and pass them on tax-free.

Which Accounts Are Subject to RMDs?

Not every retirement account is created equal in the eyes of the IRS. Here’s a cheat sheet:

✅ Accounts that ARE subject to RMDs:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans (including Roth 401(k)s)
- 403(b) and 457(b) plans
- Other employer-sponsored retirement plans

❌ Accounts that ARE NOT subject to RMDs (during the owner's lifetime):
- Roth IRAs (yep, Roths win again!)

So if you’ve got a Roth IRA and you’re loving the tax-free growth, here’s another reason to brag at the next family barbecue.

When Do RMDs Start?

This is where it gets a bit mathy—but don’t worry, no calculators required. Thanks to the SECURE Act 2.0 (yes, we’re getting fancy with our references), the age you must start taking RMDs has shifted.

- If you were born between 1951 - 1959: RMDs begin at age 73.
- Born 1960 or later? You can wait until 75.
- Already hit 70½ before 2020? Sorry, you already started RMDs and you’re stuck with them.

And—get this—your very first RMD can be delayed until April 1 of the year after you hit the magic age. But every RMD after that? Due by December 31st each year.

Here’s a hot tip: Taking two RMDs in the same year (because you delay the first one) could spike your income and increase your taxes. Plan wisely!

How Are RMDs Calculated?

Alright, this part sounds intimidating, but it’s really just glorified division. The IRS uses a formula based on your account balance and life expectancy. Basically, they look at:
- Your account balance as of December 31st of the previous year
- A life expectancy factor from the IRS Uniform Lifetime Table

Let’s say your IRA had $500,000 at year’s end. If your life expectancy factor is 25.6 (common for someone around age 73), your RMD would be:

$500,000 ÷ 25.6 = $19,531.25

Boom. That’s the amount you’re required to withdraw that year. And yes, it counts as taxable income (unless you’re pulling from your after-tax contributions or Roth 401(k)—different ballgame).

What If You Skip It? (Spoiler: Don’t)

If you’re ever tempted to ignore your RMD like a dentist appointment reminder—don’t. The penalty for missing all or part of your RMD used to be a whopping 50% of the amount you should’ve taken.

Thankfully, the SECURE 2.0 Act lightened up and reduced the penalty to 25%, and in some cases, as low as 10% if corrected in a timely manner. Still, no one wants to hand the IRS money for no reason, right?

Moral of the story? Take your RMDs seriously. Think of them like bills you can’t ignore—only with more legal consequences.

Can You Take More Than the RMD?

Absolutely! The “minimum” in RMD means just that—the least you have to take. You can always withdraw more if you need to.

Want to take the whole account and buy a yacht? Well… you can. But keep two things in mind:
1. Every dollar you take out is taxable income (hello higher tax bracket!)
2. You might outlive your savings, and no one wants to be 90, broke, and explaining crypto to their grandkids as a last-ditch retirement plan.

RMD Strategies to Minimize the Tax Bite

Just because you’re forced to take RMDs doesn’t mean you have to take a tax beating. Let’s talk strategy, folks.

1. Convert to a Roth Before RMD Age

Roth IRAs don’t have RMDs during your lifetime. So if you start converting portions of your traditional IRA to a Roth before RMD age, you might reduce your future RMDs—or dodge them entirely.

Pro tip: Roth conversions trigger taxes now, so consult a tax expert to avoid a nasty surprise.

2. Qualified Charitable Distributions (QCDs)

Feeling generous? If you’re 70½ or older, you can donate up to $100,000 per year directly from your IRA to a qualified charity. It counts toward your RMD and isn’t included in your taxable income. That's what we call a tax win-win.

3. Delay Retirement Plan Withdrawals If You're Still Working

Still punching the time clock at 73? If you don’t own more than 5% of the company, you might be able to delay RMDs from your current employer-sponsored plan. Not all plans allow this, though, so check with your HR or plan administrator.

4. Aggregate IRAs, But Not 401(k)s

Got multiple IRAs? You can combine the RMDs and take the total amount from one account. Convenient, right?

But if you have multiple 401(k)s? Sorry, each one must satisfy its own RMD separately. The IRS knows all the tricks.

RMD Tips for the Recently Inherited

Inheriting a retirement account? Congratulations… and condolences. Things get complex real quick. Here’s the nutshell version:

- If you’re a spouse, you have more flexibility—you can delay RMDs or roll the account into your own IRA.
- If you’re a non-spouse (child, grandchild, etc.), you’ll usually need to empty the account within 10 years thanks to SECURE Act rules.
- RMDs still apply in the interim, depending on the situation.

Translation: don’t go it alone. Talk to a financial advisor or tax pro—preferably one who doesn’t explain things using spreadsheets and ancient Latin.

Common Mistakes People Make With RMDs

Let’s call these “RMD bloopers,” because they’re way too common:

❌ Waiting until December 31st to take the RMD—and then missing the deadline.

❌ Forgetting about RMDs from old 401(k)s at previous jobs (out of sight ≠ out of mind).

❌ Assuming your bank or brokerage will “just take care of it.”

❌ Not realizing Roth 401(k)s still have RMDs (though this ends in 2024—cheers to that!).

Keep a checklist. Set calendar reminders. Tattoo it on your arm. Just don’t forget.

The Bottom Line: RMDs Don’t Have to Be Scary

If you take one thing away from this article (besides a weird craving to review your IRA statements), it’s this: RMDs are manageable. They may be government-mandated, but with some planning and a dash of humor, they don’t have to be the villain of your retirement story.

So stay ahead of the game, ask questions, and remember—you worked hard for that money. RMDs are just part of playing by the rules... and making sure you don’t give the IRS more than they deserve.

Still got questions? Don’t sweat it. Grab an advisor, sip your latte, and take it one RMD at a time.