RMDs

What an RMD is

All that money in traditional IRAs and 401(k)s went in untaxed, and the IRS never intended that deal to last forever. A required minimum distribution (RMD) is the yearly amount the government makes you withdraw (and pay income tax on) once you reach the trigger age (currently 73, moving to 75 for younger generations under current law).

The mechanics are simple: take each account’s balance on December 31st, divide by a life-expectancy factor from an IRS table, and that’s the minimum you must take out this year. For illustration, at 75 the divisor is about 24.6 (roughly 4% of the balance), and the percentage climbs every year after.

Miss one and the penalty is steep: up to 25% of the amount you should have taken. This is not a deadline to wing.

Why RMDs sneak up on people

An RMD isn’t a bill. It’s forced income, and it arrives stacked on top of everything else: Social Security, pensions, interest. A $1 million IRA at 75 forces roughly $40,000 of extra taxable income whether you need it or not.

That stack has ripple effects: it can push you into a higher bracket, make more of your Social Security benefit taxable, and lift your Medicare premiums into surcharge territory (IRMAA). People who saved diligently for 40 years are often genuinely surprised to find their 70s are their highest-tax decade. The problem isn’t the saving. It’s that nobody planned the exit.

The planning happens before the deadline

By the time RMDs start, most of the leverage is gone. The good moves happen in the decade before:

• Roth conversions in low-income years shrink the pre-tax pile that RMDs are calculated on (see our Roth Conversions guide, the two topics are really one topic).
• Sequencing withdrawals: sometimes it’s smarter to spend IRA money in your 60s, before it’s required, precisely to flatten the later spike.
• Qualified charitable distributions (QCDs): from age 70½, you can give directly from an IRA to charity. It counts toward your RMD but never shows up in your taxable income. For people who give anyway, it’s one of the cleanest tax moves available.
• Roth accounts have no lifetime RMDs: money you’ve already converted is out of the game entirely.

What to do if RMDs are already here

Planning options narrow, but they don’t vanish. QCDs still work every year. Timing within the year still matters. Excess RMD money you don’t need can be reinvested in a taxable account or used to fund goals you’d have funded anyway. And coordinating which accounts fund your spending still shapes what your surviving spouse and kids eventually inherit, and what tax bill comes with it.

The theme across all of it: RMDs are predictable years in advance. Treated early, they’re a math problem. Ignored, they’re a surprise tax bill with your name pre-printed.