RMD Rules Made Simple: Start Ages, Deadlines, and How to Avoid the 25% Penalty

Required minimum distributions force money out of pre-tax accounts whether you need it or not. Knowing your start age, the calculation, and the reduction strategies can save you thousands in unnecessary tax.

What RMDs are and why they exist

Traditional IRAs and 401(k)s grow tax-deferred — but not tax-free forever. Required minimum distributions (RMDs) are how the IRS finally collects: once you reach your start age, you must withdraw a minimum amount every year and pay ordinary income tax on it, whether you need the money or not.

When do RMDs start?

Under the SECURE 2.0 Act:

• Born 1951–1959: RMDs begin at age 73
• Born 1960 or later: RMDs begin at age 75

Your first RMD can be delayed until April 1 of the year after you reach your start age — but that means taking two RMDs in one year, which can push you into a higher bracket. Most people are better off taking the first one in the year they reach RMD age.

How the amount is calculated

Each year's RMD equals your prior December 31 account balance divided by an IRS life-expectancy factor (the Uniform Lifetime Table for most people). At 73 the factor is 26.5 — roughly 3.8% of the balance. The percentage rises every year: about 4.5% at 78, 5.4% at 82, and 8.2% at 90.

A $1,000,000 IRA at age 73 requires a withdrawal of about $37,700 — all taxable as ordinary income.

The penalty for missing an RMD

The excise tax for a missed or insufficient RMD is 25% of the shortfall — reduced to 10% if you correct it within two years. That is still one of the harshest penalties in the tax code, so calendar the deadline: December 31 each year.

Key rules people get wrong

• Roth IRAs have no lifetime RMDs. And since 2024, Roth 401(k)s no longer have them either.
• IRAs can be aggregated — you can take the combined IRA RMD from any one IRA. 401(k)s cannot; each plan must distribute its own RMD.
• Still working? You may be able to delay RMDs from your current employer's 401(k) (not IRAs) until you retire, if the plan allows it.
• Inherited accounts follow different rules — most non-spouse beneficiaries must empty the account within 10 years.

Strategies to reduce the RMD tax bite

1. Roth conversions before RMD age. Every dollar converted is a dollar removed from future RMD calculations.
2. Qualified charitable distributions (QCDs). After age 70½ you can send money directly from your IRA to charity — it counts toward your RMD and never appears in taxable income.
3. Coordinate with Social Security timing. Large RMDs stacked on benefits can push you through the Social Security "tax torpedo" and into IRMAA surcharges.
4. Spend pre-tax dollars earlier. Drawing from the IRA in your 60s — even without needing the cash — can smooth your lifetime tax rate.

The bottom line

RMDs are predictable years in advance, which makes them plannable. A year-by-year projection shows exactly when your RMDs begin, how large they will grow, and how conversion or withdrawal strategies shrink them.