Required Minimum Distributions (RMDs): Rules, Ages, Taxes & Planning Strategies
Scott Hammel, CFP®, CRPC®
Required Minimum Distributions are one of those retirement rules that sound more complicated than they need to be.
At a basic level, an RMD is simply a minimum amount the government requires you to withdraw each year from certain tax-deferred retirement accounts once you reach the applicable age.
The calculation itself usually isn't the difficult part.
The bigger issue is what that required income can do to the rest of your retirement tax plan — and why some of the best RMD planning happens years before the first distribution is ever required.
What Is a Required Minimum Distribution?
A Required Minimum Distribution, or RMD, is the minimum amount you generally must withdraw each year from certain retirement accounts after reaching the applicable RMD age.
RMD rules generally apply to accounts such as:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k)s
- 403(b)s
- 457(b)s
- Certain other employer retirement plans
Roth IRAs do not have lifetime RMDs for the original account owner. Under current law, designated Roth accounts in employer plans such as Roth 401(k)s and Roth 403(b)s also do not require lifetime RMDs for the original owner.
The reason RMDs exist is relatively straightforward.
For decades, many retirees received a tax deduction for contributions to traditional retirement accounts and allowed those investments to grow tax-deferred.
Eventually, the government requires some of that money to come out of the tax-deferred environment.
What Age Do RMDs Start?
For many people retiring today, RMDs generally begin at age 73.
Under current law, the applicable RMD age increases to 75 for later generations, so the exact starting age depends on your birth year.
Your first RMD can generally be delayed until April 1 of the year following the year in which you reach your applicable RMD age. After that, annual RMDs generally must be completed by December 31.
However, delaying that first distribution deserves careful consideration.
If you wait until the following year to take your first RMD, you may end up taking two taxable RMDs in the same calendar year — your delayed first RMD and your regular RMD for that year.
That additional income can affect more than your federal income tax bill.
It may also interact with other parts of your retirement tax situation.
How Are RMDs Calculated?
For most retirees, the basic calculation is relatively straightforward.
Your RMD is generally determined using:
Your retirement account balance as of December 31 of the previous year
divided by
An IRS life expectancy factor based on your age
For example, your 2026 RMD generally uses your account value as of December 31, 2025.
The applicable IRS factor changes as you age, which generally causes a larger percentage of the account to be distributed over time.
There are special calculation rules in certain situations, including when a spouse who is more than 10 years younger is the sole beneficiary.
Do You Have to Take an RMD From Every IRA?
This is an area that often creates confusion.
If you own multiple IRAs, you generally calculate the RMD for each IRA separately. However, you may generally aggregate those IRA RMD amounts and take the total required distribution from one IRA or a combination of your IRAs.
Employer retirement plans can work differently.
RMDs from multiple defined contribution plans generally must be calculated and satisfied separately from each plan, although special aggregation rules exist for certain 403(b) accounts.
This is one reason it's important to make sure your financial planner knows about all of your retirement accounts.
An old IRA forgotten at a previous custodian can still create an RMD obligation.
Are Required Minimum Distributions Taxable?
Generally, yes.
RMDs from traditional pre-tax retirement accounts are generally included in taxable income, except to the extent a distribution represents previously taxed basis or another tax-free amount.
And this is where RMD planning becomes much more important than simply remembering to take a distribution.
Imagine entering retirement with:
- Social Security
- Pension income
- A large Traditional IRA
- Required Minimum Distributions
Those income sources can begin stacking on top of each other.
A larger RMD can potentially contribute to:
- Higher taxable income
- Taxation of Social Security benefits
- Higher Medicare income-related premiums
- Less flexibility around Roth conversions
- Higher marginal tax rates
The RMD itself isn't necessarily the problem.
The problem is losing control over when taxable income is created.
That is why we believe tax planning in retirement should begin well before RMDs start.
RMDs Are Not the Boogeyman
It's easy to read about RMDs and assume they are inherently bad.
They're not.
Having a large RMD often means you successfully accumulated significant retirement assets over several decades.
That's a good problem to have.
RMDs also shouldn't determine whether you're financially prepared to retire.
They are simply another piece of the retirement-income puzzle that needs to be coordinated alongside:
- Social Security
- Pensions
- Brokerage accounts
- Roth accounts
- Cash reserves
- Investment withdrawals
The goal isn't necessarily to eliminate RMDs.
The goal is to prevent RMDs from unnecessarily disrupting the rest of your retirement tax strategy.
Our guide to Retirement Income Planning in Dallas explains how these different income sources can work together once the paycheck stops.
The Biggest RMD Mistake Happens Before RMDs Begin
One of the biggest misconceptions about RMD planning is that you should begin thinking about it when the first RMD is due.
In many cases, that's already too late.
Once RMDs begin, there are still strategies available.
But your options may be significantly more limited.
The better opportunity often occurs during the years leading up to RMD age.
Consider someone who retires at 63.
For decades, that person may have earned a significant salary and consistently contributed to a Traditional 401(k).
Then the paycheck stops.
Social Security may not have started yet.
RMDs haven't begun.
Suddenly, taxable income may be significantly lower than it was during the person's working years — or than it will be later in retirement.
That period can create an important tax-planning window.
Roth Conversions Before RMDs
One strategy worth evaluating during that window is a Roth conversion.
A Roth conversion moves money from a pre-tax retirement account into a Roth account.
You generally recognize taxable income today in exchange for moving those dollars into an account with potentially tax-free qualified withdrawals and no lifetime RMD requirement for the original Roth IRA owner.
The objective isn't:
"Pay as little tax as possible this year."
The better question is:
"How can we manage taxes over the course of retirement?"
Someone may intentionally pay more tax today if doing so is expected to reduce significantly larger taxes later.
That's why Roth conversions require careful coordination.
Our article Roth Conversions: Why Retirees Talk About Them So Much explains this planning opportunity in more detail.
Why a Taxable Brokerage Account Can Help
Another issue we frequently see is someone approaching retirement with almost everything accumulated inside:
- A 401(k)
- A Traditional IRA
- Cash
What's missing?
The middle.
A taxable brokerage account can create another source of retirement liquidity without requiring every discretionary dollar to come from a pre-tax IRA.
We often refer to this as a mid-term account.
For example, suppose a retiree wants an additional $30,000 for a large trip.
If almost everything is held in a Traditional IRA, funding the trip may require creating additional ordinary taxable income.
A properly funded brokerage account can provide another source of flexibility.
That's one reason we often encourage people approaching retirement to think beyond simply maximizing retirement accounts.
Our article Why High Earners Need Brokerage Accounts Beyond Their 401(k) explains why we believe this account is frequently the missing middle in a financial plan.
What Happens If You Don't Take Your RMD?
The old RMD penalty was particularly severe.
Current law has reduced it, but missing an RMD can still be expensive.
The excise tax on an RMD shortfall is generally 25% of the amount that should have been distributed and may be reduced to **10% when corrected within the applicable correction period.
If you believe you missed an RMD, don't simply ignore it.
Determine the shortfall, correct it as appropriate, and work with your tax professional regarding the applicable reporting and potential relief.
What If You Don't Need Your RMD?
This is extremely common among the retirees we work with.
They have Social Security.
Maybe they have a pension.
Their cash reserve is healthy.
Their normal lifestyle is already funded.
Then the RMD arrives.
You are required to take an RMD.
You are not required to spend it.
For many of our clients who don't need their RMD for current spending, we withhold the appropriate amount for taxes and reinvest the remaining proceeds into their taxable brokerage or mid-term investment account.
That keeps the money working toward future goals while building a pool of assets that can eventually fund larger expenses without requiring additional IRA distributions.
We explore those options further in What to Do With Excess RMDs.
Qualified Charitable Distributions Can Help Charitable Retirees
For someone who is already charitably inclined, a Qualified Charitable Distribution, or QCD, can become an important planning tool.
A QCD allows an eligible IRA owner to make a qualifying charitable distribution directly from an IRA.
When structured properly, a QCD can count toward an RMD while potentially excluding the qualifying distribution from taxable income.
But there's an important order to this conversation.
You should want to give the money away first.
We don't recommend charitable strategies simply because they create tax benefits.
First determine:
"Can I comfortably afford to give this money away, and is charitable giving already important to me?"
If the answer is yes, then the planning question becomes:
"What's the most tax-efficient way to accomplish that gift?"
That's where QCD planning can become particularly valuable.
How We Typically Handle RMDs
There isn't one correct way to take an RMD.
You can generally take distributions throughout the year or satisfy the annual requirement in a larger distribution.
For many clients, we handle RMDs toward the end of the year.
That gives us an opportunity to coordinate:
- The final required amount
- Other retirement income received during the year
- Tax withholding
- Charitable giving
- Cash needs
- Reinvestment of excess proceeds
For clients who don't need the distribution for spending, the remaining proceeds after withholding are often moved into their mid-term brokerage account.
The mechanics are relatively simple.
The planning around them is what matters.
RMD Planning at 60 Can Be More Valuable Than RMD Planning at 73
If you're approaching retirement in your early 60s, RMDs may feel far away.
That's precisely why it can be an important time to plan for them.
Those years may provide opportunities to:
- Build taxable brokerage assets
- Evaluate Roth conversions
- Determine when to claim Social Security
- Plan charitable giving
- Coordinate retirement withdrawals
- Reduce future reliance on pre-tax accounts
Once RMDs, Social Security, pensions, and other income sources are all turned on, you may have considerably less control over taxable income.
The earlier you create flexibility, the more options you generally have.
The Bottom Line
Required Minimum Distributions don't need to become the boogeyman of retirement.
They are simply one component of a larger retirement-income and tax plan.
The problem arises when someone waits until RMD age to begin thinking about them.
By then, much of the opportunity to proactively reshape the tax characteristics of a retirement portfolio may already be behind them.
The better question isn't simply:
"How do I take my RMD?"
It's:
"How do my RMDs fit into the retirement plan I've been building for the last several decades?"
That conversation should ideally begin years before the first required distribution.
If you're approaching retirement and want help coordinating RMDs, Roth conversions, retirement income, investments, and taxes into one strategy, you can start a conversation with our team.