Required Minimum Distributions (RMDs): 5 Common Questions Retirees Ask

As financial planners who specialize in retirement, we regularly answer questions about Required Minimum Distri­b­u­tions (RMDs). Under­standing how RMDs work can help you avoid unnec­essary taxes, prevent costly mistakes, and make more informed decisions about your retirement income strategy.

1. From which types of accounts do I have to take RMDs?

RMDs apply to tradi­tional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored defined contri­bution plans, including 401(k), 403(b), 457(b), and profit-sharing plans. Generally, if you received a tax deduction when you made a contri­bution, the IRS will eventually require distri­b­u­tions from the account. On the other hand, if you did not get a tax deduction on the contri­bution, then there generally is no RMD requirement. For example, there are generally no lifetime RMDs for Roth IRAs, desig­nated Roth accounts, or taxable brokerage accounts. When it comes to inherited retirement accounts, the rules are a bit different. Generally, if you receive an inherited retirement account (either tradi­tional or Roth) then RMD rules apply although the timing and calcu­lation is a bit different than for original account holders. As with all specific RMD questions, you should consult your financial or tax adviser for guidance.

2. How do I calculate my RMD?

The calcu­lation depends on whether you own the account or inherited it from someone else. For simplicity, we’ll focus on the rules that apply to original account owners. In most cases, you calculate your RMD by dividing your account balance as of December 31 of the prior year by the distri­b­ution period (or factor) that corre­sponds to your age in the current year under the IRS Uniform Lifetime Table. The distri­b­ution factor used in the calcu­lation can be found in the IRS Uniform Lifetime Table below. For example, if your account balance on December 31, 2026 was $100,000, you turn 74 in 2027, and the IRS table factor for your age is 25.5, your RMD would be $3,921.57. If your spouse is your sole benefi­ciary and is more than 10 years younger than you, you generally use the IRS Joint Life and Last Survivor Expectancy Table instead, which usually results in a smaller RMD.

IRS Uniform Lifetime Table (Table III)

IRS Uniform Lifetime Table (Table III), used by most IRA owners and retirement plan partic­i­pants for calcu­lating Required Minimum Distri­b­u­tions (RMDs). Current table effective beginning January 1, 2022.

3. When do I have to start taking my RMDs?

For those born prior to 1960, RMDs begin in the year the account holder turns 73. But for those born in 1960 or later, this is pushed back to the year in which you turn 75. There is one important timing rule that applies only to your first RMD. Your first RMD is due by April 1 of the year after you reach the applicable RMD age. For example, if an account holder turns 73 in 2026, the first RMD must be taken by April 1, 2027. After that, annual RMDs are due by December 31 each year. If you delay your first RMD until the following year, you may end up taking two taxable distri­b­u­tions in the same calendar year. There are also specific rules regarding workplace retirement plans (such as 401ks) that may allow a still-working exception, which lets employees delay RMDs from their current employer’s plan while they are still working. However, employees should review their plan documents or consult their adviser to determine whether this exception applies.

4. Do I have to spend my RMD?

No. An RMD is a withdrawal requirement, not a spending requirement. In fact, many retirees reinvest RMD proceeds in taxable accounts when the funds are not needed for current living expenses. Once the funds are distributed, you can use them for living expenses, save them in a taxable account, or poten­tially direct them toward other planning goals. What matters is that the required amount is withdrawn from the retirement account by the deadline. Keep in mind that the distri­b­ution is taxable even if you do not spend the money. However, if you are chari­tably inclined and would like to poten­tially reduce taxable income, you can direct some or all of your RMD (up to $111,000 in 2026) to be distributed to a charity. This is called a Qualified Chari­table Distri­b­ution (QCD) and counts towards satis­fying your RMD but the distri­b­ution is not considered taxable. It’s also important to note that you do not have to wait until RMDs begin to make qualified chari­table distri­b­u­tions as they can be made as soon as the account holder turns 70.5.

5. What happens if I don’t take my RMD?

If you do not withdraw your full RMD by the deadline, the IRS may impose an excise tax on the amount not taken. Under current rules, the penalty is 25% of the amount you failed to withdraw, but it may be reduced to 10% if the shortfall is corrected within the correction window. That window ends on the last day of the second tax year after the year the RMD was missed. For example, if you miss an RMD in 2026, the correction window would end on December 31, 2028. If you discover that you missed an RMD, it’s important to address the issue as quickly as possible.

Conclusion

Required Minimum Distri­b­ution rules can be complex, and they continue to evolve over time. Many retirees are surprised to learn that RMDs are based on IRS life expectancy tables and must be recal­cu­lated each year using the previous year’s account balance and the applicable life expectancy factor. Under­standing when RMDs begin, how they are calcu­lated, and what options are available can help you avoid unnec­essary taxes, penalties, and planning mistakes. At Rodgers & Associates, we specialize in retirement planning and are here to help clients navigate the financial decisions that come with retirement, including Required Minimum Distri­b­u­tions and retirement income planning.

This article was origi­nally published on January 9, 2020, and was updated for accuracy and relevance on the date above.