What is RMD?

RMDs are the minimum amounts you must withdraw each year from tax-deferred retirement accounts once you reach age 73. RMD rules are designed to prevent individuals from deferring taxes on retirement savings indefinitely. The distribution amount is calculated by dividing the account's prior year-end balance by a life expectancy factor from IRS Uniform Lifetime Tables.

The SECURE 2.0 Act of 2022 increased the starting age for RMDs from 72 to 73, effective in 2023. The age will rise to 75 on January 1, 2033. Under SECURE 2.0, lifetime RMDs were eliminated for designated Roth accounts in employer-sponsored plans starting in 2024. Roth IRAs remain exempt from RMDs during the original owner's lifetime.

Failing to take an RMD on time results in an excise tax. SECURE 2.0 reduced this penalty from 50% to 25% of the undistributed amount. If the failure is corrected within a designated correction window (typically before the IRS assesses the tax or by the end of the second year), the penalty is reduced to 10%.