Key takeaway
After 73 the IRS requires yearly withdrawals from tax-deferred accounts, and missing one is expensive, so automate it.
Key takeaway
Required Minimum Distributions (RMDs) are the amounts the IRS makes you withdraw from tax-deferred retirement accounts each year after you turn 73. Miss one and the penalty is steep—so know your number before the deadline.
RMDs are the IRS taking its turn
You got a tax break putting money into a traditional 401(k) or IRA: no tax on the contribution, and the money grew untaxed. The deal has a deadline. Starting at age 73 (for most people), the IRS requires you to take a minimum withdrawal each year and pay ordinary income tax on it. That required amount is the RMD.
The rule applies to tax-deferred accounts: traditional IRAs, 401(k)s, 403(b)s, and similar. It does not apply to Roth IRAs during your lifetime—Roth accounts have no RMDs for the original owner, which is one reason they are valuable for leaving money to heirs.
How the amount is calculated
Each year, the RMD is roughly your account balance on December 31 of the prior year divided by a life-expectancy factor from the IRS tables.
RMD = prior year-end balance ÷ distribution period
The distribution period comes from IRS life-expectancy tables and gets smaller as you age, so the percentage you must take grows over time. At 73 the divisor is about 26.5, meaning you withdraw roughly 3.8% of the balance. By 80 it is closer to 5.4%, by 90 around 8.9%.
A quick example: a $500,000 IRA balance at the end of the year before you turn 73 gives an RMD near $500,000 ÷ 26.5 ≈ $18,870 for that first year. That amount is taxable income.
The penalty is the part that hurts
If you fail to take the full RMD, the amount you should have taken but did not is subject to a penalty. The penalty was historically 50% of the shortfall—still a powerful incentive to get it right, even after recent reforms lowered it. The safe move is to automate the withdrawal so it never slips.
Two practical notes:
- Your first RMD can wait until April 1 of the year after you turn 73, but if you delay, you then owe two in that following year, which can push you into a higher tax bracket.
- Still working? You may be able to delay RMDs from your current employer's 401(k), but not from an IRA. Rules differ, so check the plan.
The mistake everyone makes: forgetting the tax hit
RMDs are ordinary income. A large withdrawal can bump you into a higher bracket, increase Medicare premiums (which are income-tested), and affect the taxability of Social Security. People are surprised in year one.
Other errors:
- Assuming Roth IRAs have RMDs: they do not, for the original owner.
- Taking it from the wrong account: you can aggregate IRAs and take the total from one, but 401(k)s must be calculated and taken separately per plan.
- Reinvesting without a plan: the cash leaves the account taxed; where it goes next should be intentional.
- Missing the deadline: there is no grace period that saves the penalty automatically.
How to handle RMDs well
- Know your number before the year starts with the RMD Calculator.
- Automate the withdrawal on a schedule so the deadline never sneaks up.
- Plan for the tax—set aside or withhold, don't spend the gross amount.
- Consider qualified charitable distributions (QCDs) if you are charitably inclined; they can satisfy the RMD and reduce taxable income.
Related next steps
Estimate your withdrawal with the RMD Calculator. To see how the account balance got there, the 401k Calculator models the buildup, and the Retirement Calculator shows whether the withdrawals cover your spending.