Required minimum distributions (RMDs): Rules and how to calculate

Maximizing the growth of your retirement savings is crucial for a financially secure retirement. But while allowing your funds to accumulate for as long as possible in the best retirement plans is ideal, you'll eventually need to start taking required minimum distributions (RMDs) annually for many types of retirement accounts, including individual retirement accounts (IRAs), such as traditional IRAs, SEP IRAs, and SIMPLE IRAs, as well as most employer-sponsored plans, but not Roth ones.

As the name implies, an RMD is the minimum amount to be withdrawn from retirement accounts that have been funded with pre-tax dollars. If you need or want to withdraw more, you can, subject to any other plan rules. But for those who perhaps have more money than they need in their retirement accounts or who are trying to delay taking money out, then RMDs can be particularly relevant for financial planning purposes.

Understanding RMDs

Definition and purpose of RMDs

Required minimum distributions (RMDs) are mandatory withdrawals that retirees must take from their tax-advantaged retirement accounts, as established by the IRS. Generally, RMDs start at age 73, but there are exceptions, such as usually being able to delay RMDs from employer-sponsored plans until you actually retire.

The money you take out as an RMD generally counts as taxable income. So, rather than letting your retirement account grow tax-free indefinitely, RMDs prompt you to draw down at least some of your retirement funds. Failure to take your RMDs can result in significant tax penalties.

The purpose of RMDs is to ensure that people can't avoid paying their deferred tax liability on those contributions. It also helps generate tax revenue for the government.

Key points of RMDs

RMDs apply to many of the most common retirement plans, such as:

• Traditional 401(k)s
• Traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• 403(b)s
• 457 plans

These retirement accounts have one thing in common: They are funded with pre-tax dollars, providing plan participants an initial tax break. However, when withdrawing during retirement, investors must pay income tax on their distributions. RMDs ensure you fulfill that tax obligation.

Profit-sharing plans and other defined contribution plans are also generally subject to RMDs.

Roth IRAs and Roth 401(k) are the exemptions. Since Roths are funded with after-tax dollars, plan participants have already fulfilled their tax obligations and do not have any minimum withdrawal requirements during their lifetime. However, RMD rules may apply to those who inherit Roth accounts, but the rules and strategies differ depending on factors such as who inherits the assets.

When do RMDs start?

The SECURE 2.0 Act increased the RMD age from 72 to 73 as of 2025. This change stems from longer lifespans and people spending increased time in retirement. In 2033, the RMD age is scheduled to rise again to 75.

While the RMD age is 73 for now, some exceptions apply. For example, if you have an employer-sponsored plan, such as a 401(k), you may be able to wait longer to take your RMDs.

That's because the IRS rules for employer-sponsored plans apply when you turn 73 or the year you retire (whichever is later), assuming your current plan allows you to keep your assets there and you're not a 5%+ owner of the business. So, it's possible that if you're still working past age 73, your employer-sponsored plan may enable you to delay taking RMDs.

How to calculate your RMD

When calculating RMDs, the amount you must withdraw isn't a fixed number or a percentage. Instead, an RMD is based on two factors:

1. The account balance at the end of the previous year
2. The distribution period, i.e., life expectancy as determined by the IRS

Simply divide the account balance by the distribution period to complete the calculation for traditional RMD calculations, although they might differ for inherited retirement accounts.

If you have multiple IRAs where the RMD rules apply, calculate the RMD for each account. However, you can then combine these amounts and take that much out of one account if you prefer. You can also do so for 403(b) plans, but for other employer-sponsored plans like 401(k)s, you need to take RMDs separately from each.

IRS Uniform Lifetime Table 2025

The IRS Uniform Lifetime Table lists the distribution periods by age, which you can then use to calculate your RMD.

Distribution periods are related to life expectancy, with your required amount lowest when you first start having to take RMDs, in terms of percentage of your balance.

As you age, the distribution period decreases, meaning a larger proportion of your retirement account balance must be withdrawn. However, the actual size of the RMDs can vary based on if your account balance grows or shrinks, not just how it's divided by the distribution period.

For example, the Uniform Lifetime Table for 2025 shows that the distribution period for someone who is 75 is 24.6. So, if a 75-year-old wanted to calculate their RMD based on a $1 million IRA balance, they would divide $1 million by 24.6, which equals $40,650.41. An 85-year-old would use a factor of 16, producing an RMD of $62,500 based on the same $1 million balance.

Source: IRS website

RMD deadlines and penalties

RMD annual deadline

You don't have to take an RMD as soon as you turn 73. Rather, you have until April 1 of the following year from when you turn that age. After that, you must take your RMD by December 31 each year. That can mean you take two RMDs in the first calendar year you start making these withdrawals.

Penalty for failure to take RMD

If you don't withdraw enough to satisfy your RMD each year, you could have to pay an additional tax of up to 25% of the gap between what you withdrew and your RMD.

That said, there can be ways to avoid or reduce this penalty. For example, if you correct the issue within two years, generally, the tax could go down to 10%. You could also request a waiver by filing Form 5329 and including an explanation as to why a reasonable error was made and how you're fixing this error.

Special considerations for RMDs

RMDs for multiple accounts

As mentioned, people with multiple retirement accounts must calculate RMDs for each account separately. However, for IRAs and 403(b)s, you might be able to calculate for each but take the joint sum out of only one account or multiple accounts. That way, some accounts can continue growing untouched, like if you have certain assets in certain accounts you want to avoid selling. For other employer-sponsored accounts, though, you need to calculate and take RMDs from each one.

Qualified charitable distributions (QCDs)

Making a qualified charitable distribution (QCD) from an IRA may allow you to satisfy your RMD without putting the money into your own accounts. That way, you could avoid increasing your taxable income for the year. For 2025, you can make a QCD of up to $108,000 per person (double for married couples, plus some other nuances) tax-free from your IRA if you're at least 70 ½, which is more than many people's RMDs.

Not everyone necessarily has the financial ability to donate their full RMD amount, but it's an option to think about as part of your overall tax and retirement planning. You might decide to donate part of your RMD amount via a QCD, for example, while withdrawing the rest into your own account. Just be sure to follow the rules to avoid taxation, such as making the distribution directly from the IRA to the charity, rather than going through your account first.

Accounting for these RMDs before you have taken them can go a long way toward optimizing your finances.

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