What is a required minimum distribution (RMD)?
In one paragraph
A required minimum distribution (RMD) is the minimum amount the IRS requires retirees to withdraw from traditional IRAs, 401(k)s, and most other tax-deferred retirement accounts each year beginning at age 73. Failing to take the full RMD triggers a penalty of 25% of the amount that should have been withdrawn.
What this actually means
Required minimum distributions exist because the government extended a tax deferral when contributions were made — or when earnings accumulated tax-free — and eventually demands that those funds be withdrawn and taxed as ordinary income. Indefinite deferral, which would allow tax-advantaged accounts to function as estate-planning vehicles, is not what Congress intended when creating tax-deferred retirement accounts.
**Who is subject to RMDs?** Owners of traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, 457(b)s, and most other employer-sponsored plans must take RMDs beginning April 1 of the year following the year they reach age 73 (under SECURE 2.0 Act rules effective 2023). Roth IRAs are the notable exception — original Roth IRA owners face no RMDs during their lifetime, though beneficiaries of inherited Roth IRAs are subject to distribution rules.
**How is the RMD calculated?** Each year's RMD is determined by dividing the account balance as of December 31 of the prior year by a life expectancy factor from IRS tables (most commonly the Uniform Lifetime Table). A 74-year-old with a $500,000 IRA balance and a life expectancy factor of 25.5 would have an RMD of approximately $19,608.
**The aggregation rules** allow owners of multiple IRAs to calculate RMDs separately for each account but satisfy the total obligation by withdrawing from any combination of those accounts. 401(k) RMDs, by contrast, must be taken from each plan individually.
**Still-working exception:** Workers who are still employed and do not own more than 5% of the sponsoring employer may be able to defer RMDs from that employer's current plan until they retire — but this exception does not apply to IRAs or old employer plans.
**Tax planning around RMDs** is a legitimate area of focus. Retirees who expect higher income (or higher tax rates) in future years may benefit from Roth conversions in the years before RMDs begin, reducing the balance subject to mandatory withdrawal. Qualified charitable distributions (QCDs) allow IRA owners age 70½ or older to donate up to $105,000 annually directly to a charity, satisfying RMD obligations without the distribution counting as taxable income — an efficient strategy for charitably inclined retirees.