Learn About RMD Distribution Options and Strategies

Understanding RMD Rules and Age Thresholds

Required Minimum Distributions, commonly called RMDs, are withdrawals that the Internal Revenue Service requires you to take from certain retirement accounts once you reach a specific age. For many people, that age has recently changed. As of 2023, the age at which RMDs begin shifted from 72 to 73 years old, under rules established by the SECURE 2.0 Act. This threshold continues to increase gradually—it will reach 75 by 2033. Understanding when your RMDs must start is one of the most important aspects of retirement account planning, because missing this requirement carries significant penalties.

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The rules differ depending on whether you are still working or have already retired, and they vary substantially based on the type of retirement account you own. Traditional IRAs, SEP IRAs, SIMPLE IRAs, and most 401(k) plans are subject to RMD rules. Roth IRAs, however, operate under different rules—if the account belongs to the original owner, no distributions are required during their lifetime. This distinction matters enormously for people who want to manage their taxable income carefully during retirement.

If you inherited a retirement account from someone else, RMD rules may affect you differently depending on who left you the account and when they passed away. Spouses who inherit retirement accounts from their partners have different options than non-spouse beneficiaries. Someone who inherited an account in 2020 or later generally must empty the account within ten years, whereas earlier inherited accounts might follow a "stretch" distribution schedule.

For those still employed, many employers offer what is called the "Still-Working Exception." If you continue to work and participate in your employer's retirement plan, you may postpone RMDs from that specific plan until you actually retire. However, this exception does not apply to IRAs—those RMDs must begin at the required age regardless of employment status. Understanding whether you qualify for this exception can substantially change your retirement income plan.

Practical takeaway: Note your specific birth date and retirement account types. If you were born in 1950 or later, your RMD age is 73 or older. Check with your financial institution about which accounts are subject to RMDs and which are not, since this directly shapes how much you must withdraw each year.

How RMD Amounts Are Calculated

The IRS calculates your RMD using a formula that combines two pieces of information: your account balance on December 31 of the previous year, and a life expectancy factor from IRS tables. The basic formula is straightforward: divide your account balance by the life expectancy divisor that matches your age. For example, if you are 73 years old and have a total balance of $500,000 across all subject accounts, and the IRS life expectancy divisor for age 73 is 26.5, your RMD would be approximately $18,868 ($500,000 divided by 26.5).

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The IRS publishes three life expectancy tables: the Uniform Lifetime Table, the Single Life Expectancy Table, and the Joint Life and Last Survivor Expectancy Table. Most people use the Uniform Lifetime Table, which assumes life expectancy grows longer as you age. The divisors decrease each year—at age 74, the divisor becomes 25.5, at age 75 it is 24.6, and so forth. This means your RMD amount typically increases as you get older, because even though the divisor shrinks, it often does not shrink as fast as your account balance grows through investment returns or withdrawals.

If you are married and your spouse is substantially younger—more than 10 years younger—you may use the Joint Life and Last Survivor Expectancy Table instead. This table produces a lower RMD amount because it assumes a longer combined life span. For instance, a 73-year-old with a 50-year-old spouse might use a divisor of 48.2 instead of 26.5, dramatically reducing the required distribution.

The account balance used in this calculation is always measured on December 31 of the previous calendar year. If your investments gained significant value during the year, or if you received a large contribution, you will not see that reflected in the current year's RMD—it will affect next year's calculation instead. Conversely, market downturns that reduced your account value on December 31 will lower your RMD amount for the following year. This timing matters because it means your RMD calculation lags one year behind market conditions.

If you have multiple retirement accounts, you must calculate the RMD separately for each account type, but then aggregate IRAs together. You can take your total IRA RMD from any single IRA or split it among multiple IRAs as you choose. However, 401(k)s, 403(b)s, and other employer plans cannot be aggregated—you must take the required amount from each plan individually.

Practical takeaway: Gather your December 31 account statements from the previous year and look up the IRS life expectancy divisor that matches your age on the IRS website or your financial institution's resources. Multiply your total IRA balance by this divisor to find your required amount. For employer plans, request that your plan administrator calculate your RMD to ensure accuracy.

Distribution Timing and Calendar Year Requirements

The IRS requires that your RMD be distributed during the calendar year for which it is owed, with one important exception for the first distribution. For your first RMD—the year you turn the required age—you may take that distribution anytime up to April 1 of the following year. This one-time extension is called the "grace period," and it applies only to your initial RMD. Every RMD after that must occur by December 31 of the year it is owed, with no extensions.

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Many people use this grace period strategically. Someone who turns 73 in November might delay their first RMD until January or February of the following year, timing it to match their cash flow or tax situation. However, this decision has consequences. If you take your first RMD after December 31, you will have two RMDs due in the year following that first distribution—your first RMD (taken in January-April) and your second RMD (due by December 31 of the same calendar year). This can create a larger taxable income spike than you anticipated, potentially affecting Medicare premiums, Social Security taxation, or tax bracket placement.

RMDs can be taken as a lump sum withdrawal or divided throughout the year. Some people take their entire RMD in January to complete the requirement early. Others spread it across monthly or quarterly withdrawals to manage their taxable income more smoothly or to simplify their accounting. Your financial institution can usually process RMDs automatically on a schedule you set, reducing the chance of accidental missed distributions.

If you miss taking an RMD or take an insufficient amount, the IRS assesses a penalty on the shortfall. Previously, this penalty was 50% of the amount you failed to withdraw. However, under new rules effective January 1, 2023, the penalty was reduced to 25% for first-time failures, with a further reduction to 10% if you correct the error within two years. Even so, these penalties are substantial. If you were supposed to take $20,000 and took nothing, you could owe a $5,000 penalty in addition to income tax on the missed distribution.

The IRS may waive penalties in certain situations if you can demonstrate reasonable cause—for example, if your financial institution made an error, if you experienced serious illness or incapacity, or if you were unaware of the requirement. However, waivers are not automatic. If you discover you have missed an RMD, reporting the missed amount on an amended tax return and requesting penalty relief early gives you the best chance of success.

Practical takeaway: Mark December 31 on your calendar as your RMD deadline. If you have a first RMD, remember that you have until April 1 of the following year, but consider whether taking it early would better suit your circumstances. Set up automatic distributions through your financial institution if possible, and request a confirmation statement each time a distribution is processed.

Different Account Types and Their Unique RMD Rules

Traditional IRAs and RMDs are nearly synonymous—anyone with a traditional IRA who has reached the required age must take RMDs unless they fall into a specific exception

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