Required Minimum Distributions Explained: Rules, Deadlines, and Strategies

If you have a traditional IRA or an employer retirement plan like a 401(k), the government eventually requires you to start withdrawing money and paying tax on it. These withdrawals are called Required Minimum Distributions, or RMDs. Understanding how they work, and planning for them well before they start, can make a meaningful difference in your retirement income and your tax bill.

RMDs exist because traditional retirement accounts grow tax-deferred. You got a deduction (or your employer's contributions went in pretax) and the account has been growing without annual tax drag. At some point, the IRS wants its share, so it sets a schedule for mandatory withdrawals once you reach a certain age.

The exact age at which RMDs begin has changed more than once in recent years due to legislation, and it depends on your birth year. Rather than guess at a specific number here, we'd encourage you to confirm your personal RMD start age directly with us or review the current rules on the IRS Retirement Plans and IRAs Required Minimum Distributions page. This is one of those areas where getting the date right matters, and it's worth a quick conversation rather than relying on a rule of thumb.

• RMDs are mandatory withdrawals from traditional IRAs and most employer retirement plans, starting at an age that depends on your birth year
• The amount is calculated by dividing your account balance by an IRS life expectancy factor, not a fixed percentage
• Missing an RMD can trigger an IRS penalty, so tracking deadlines matters
• Qualified charitable distributions and pre-RMD Roth conversions are two common ways to plan ahead
• If you have multiple accounts, the rules for aggregating RMDs differ between IRAs and workplace plans

RMD rules generally apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored plans such as 401(k)s and 403(b)s. Roth IRAs owned by the original account holder are not subject to RMDs during their lifetime, which is one reason some retirees consider Roth conversions as part of their long-term plan (more on that below).

Each account type has its own nuances, and rules for inherited retirement accounts are different still. If you've inherited an IRA or 401(k), the distribution rules that apply to you may not follow the same schedule as your own retirement accounts, so it's worth reviewing separately with us.

Your RMD is not a fixed percentage of your account. Instead, it's calculated each year by taking your account balance as of December 31 of the prior year and dividing it by a life expectancy factor published by the IRS in its Uniform Lifetime Table. As you age, that factor decreases, which generally means your required withdrawal percentage increases over time.

Because the calculation uses your account balance from the end of the prior year, RMD amounts can shift year to year based on market performance. A strong year in your portfolio can mean a larger RMD the following year, even if your spending needs haven't changed. This is one reason we encourage clients to review their RMD calculation annually rather than assume it will look the same as last year.

The IRS imposes an excise tax penalty on any RMD amount that isn't withdrawn by the deadline. Penalty rules have been adjusted through recent legislation, and the exact percentage can vary depending on how quickly the shortfall is corrected. Given how significant this penalty can be, we strongly recommend confirming your specific deadline and any penalty relief options with us or directly through IRS guidance on required minimum distributions well before your RMD is due, rather than after a deadline has passed.

Qualified charitable distributions (QCDs). If you're charitably inclined, a QCD allows eligible IRA owners to direct all or part of an RMD directly to a qualified charity. Because the funds go straight to the charity rather than to you first, the distributed amount is generally excluded from taxable income, which can be more efficient than withdrawing the funds and donating afterward. Eligibility rules and limits apply, so this is worth discussing with us before year-end giving decisions.

Roth conversions before RMDs begin. Converting a portion of a traditional IRA to a Roth IRA in the years before RMDs start moves those assets into an account that isn't subject to lifetime RMDs for the original owner. Conversions are taxable in the year they occur, so the tradeoff is paying tax sooner in exchange for reducing future required withdrawals and potentially lowering RMD amounts later in retirement. This strategy works best as part of a multi-year plan that looks at your full tax picture, which is exactly the kind of coordination our team, alongside Cannon Tax & Accounting, focuses on.

Aggregating RMDs across accounts. If you own multiple IRAs, you can generally calculate the RMD for each one separately and then withdraw the total from any one IRA or combination of IRAs you choose. Employer plans like 401(k)s follow different aggregation rules and generally must be satisfied from each plan individually. Mixing up these rules is a common and costly mistake, so it's worth confirming your specific account mix with us.

• Assuming your RMD start age is the same as a friend's or a headline you read, when it actually depends on your birth year
• Waiting until December to calculate and take an RMD, leaving no room to correct an error
• Forgetting that inherited retirement accounts often follow different distribution rules
• Overlooking QCDs when charitable giving is already part of your annual plan
• Not accounting for how a strong market year can increase next year's RMD

RMD planning works best when it's built into your broader retirement and tax picture well before your first required withdrawal. If you're approaching the age where RMDs may apply, or you want to explore whether Roth conversions or charitable giving strategies make sense for your situation, we'd welcome the conversation. You can schedule a call with us to review your accounts and put a plan in place.

Do Roth IRAs have RMDs? Roth IRAs are not subject to RMDs during the original owner's lifetime, which is part of why some retirees convert traditional balances to Roth accounts ahead of their RMD start age.

What happens if my account balance changes a lot during the year? Your RMD is based on your balance as of December 31 of the prior year, so mid-year market swings don't change the current year's required amount, though they can affect next year's calculation.

Can I take my RMD early in the year instead of waiting? Generally yes, RMDs can be taken any time during the year they're due, and some retirees prefer taking them early to avoid year-end timing pressure, though this depends on your specific plan rules.

Do I have to take an RMD from every account I own? For IRAs, you can generally aggregate the required amount and withdraw it from one or more IRAs of your choosing. Employer plans typically must be satisfied separately. Confirm your specific situation with us.

What if I inherited an IRA or 401(k)? Inherited retirement accounts often follow different distribution rules than accounts you own outright. Review your specific inherited account rules with us before assuming a schedule.

Are qualified charitable distributions the same as a regular charitable deduction? No, a QCD is a direct transfer from your IRA to a qualified charity and is treated differently on your tax return than a charitable deduction you claim after withdrawing funds yourself. Eligibility rules apply.

Will converting to a Roth IRA eliminate my RMD entirely? Converting reduces the traditional balance subject to future RMDs, but the conversion itself is a taxable event. Whether it makes sense depends on your full tax picture, which is worth reviewing with us and Cannon Tax & Accounting.

How often does the IRS life expectancy table change? The IRS periodically updates its life expectancy tables. Always confirm you're using the current version for your calculation rather than relying on an older table.

What's the safest way to know my exact RMD deadline? Because start ages and deadlines depend on your birth year and account type, the safest approach is to confirm your specific dates with us or review current guidance directly from the IRS rather than relying on general estimates.

Can penalties for a missed RMD be reduced or waived? The IRS has provided relief options in certain circumstances for missed RMDs. If you believe you've missed a distribution, reach out to us promptly so we can help you understand your options.

• IRS, Retirement Plans FAQs regarding Required Minimum Distributions