What is RMD?

Required Minimum Distributions (RMDs) are the minimum amounts that retirement account owners must withdraw annually from their tax-advantaged, tax-deferred accounts once they reach a specific age mandated by federal law. The primary purpose of RMD rules is to prevent individuals from deferring income taxes on their retirement savings indefinitely. Accounts subject to RMDs include Traditional IRAs, SEP IRAs, SIMPLE IRAs, traditional 401(k) plans, 403(b) plans, and 457(b) plans. The annual RMD amount is calculated by taking the account's total balance on December 31 of the previous year and dividing it by a life expectancy factor, which the IRS publishes in its Uniform Lifetime Table.

The legal starting age for RMDs has undergone significant changes in recent years due to federal legislation. The SECURE 2.0 Act of 2022 increased the RMD starting age to 73, effective in 2023, and scheduled a future increase to age 75 starting on January 1, 2033. For those who reach age 73, their first RMD must be taken by April 1 of the calendar year following the year they turn 73; all subsequent RMDs must be taken by December 31 of each year. Notably, under SECURE 2.0, lifetime RMD requirements were eliminated for designated Roth 401(k) and Roth 403(b) accounts starting in 2024, aligning their tax treatment with Roth IRAs, which are exempt from RMDs during the original owner's lifetime.

Failing to withdraw the full RMD amount by the IRS deadline carries severe financial consequences. The SECURE 2.0 Act reduced the standard excise tax penalty for a missed RMD from 50% to 25% of the undistributed amount. If the mistake is corrected within a designated correction window (typically before the IRS assesses the tax or by the end of the second tax year following the failure), the penalty is further reduced to 10%. Inherited retirement accounts are also subject to RMD rules, though the guidelines depend heavily on the beneficiary's relationship to the deceased.