Required minimum distributions (RMDs)

A key part of retirement income planning is understanding which types of income are subject to the IRS required minimum distribution (RMD) rule. This rule requires investors to take minimum distributions out of certain retirement accounts once they’ve reached a specific age.

However, IRS rules around RMDs can be complex and result in tax penalties if not followed correctly.

As you near retirement, we will help you avoid these penalties by working with you in creating a withdrawal strategy for these distributions (and your other retirement income) that is compliant with the law.

Here are answers to commonly asked questions about RMDs

In this article

1. What is an RMD?
2. What is my RMD age?
3. Did the RMD age change?
4. When am I required to take my RMD?
5. When should I begin taking my RMD?
6. How are RMDs calculated by the IRS?
7. How do I determine my RMD amount?
8. What retirement accounts are subject to RMDs?
9. How do I take my RMD if I have more than one retirement plan? Can I combine my RMDs?
10. Are there ways to avoid or reduce my distribution requirements?
11. Are RMDs required for Roth IRAs? What about inherited Roth IRAs?
12. How can I avoid tax penalties?

What is an RMD?

Across qualified retirement plans such as 401(k), IRA, 403(b) and 457(b) accounts, the IRS does not allow investors to maintain balances indefinitely. As such, federal law mandates that a minimum amount must be withdrawn each year, beginning at a certain age. This amount is a required minimum distribution, or RMD.

What is my RMD age?

Your RMD age depends on the year you were born. Please note, you don’t have to take your first RMD until April 1 of the year you reach your RMD age. RMDs for subsequent years must be taken by Dec. 31.

Did the RMD age change recently?

In December 2022, retirement legislation — known as SECURE Act 2.0 — was signed into law, changing the rules on how investors can save for their retirement. The legislation increased the RMD age from 72 to 73 beginning in 2023 for individuals who turn 72 after 2022. The law also mandates an automatic increase in the RMD age to 75, beginning in 2033. Individuals who turned 72 prior to 2023 are already subject to RMDs.

When am I required to take my RMD?

Once you reach your RMD age, you are required to take them by these deadlines:

• The year you reach your RMD age: You must take your RMD by April 1 of the year after you reach your RMD age. For example, if you turn 73 in October 2024, your first RMD must be taken by April 1, 2025, and your second RMD must be taken by December 31, 2025.
• The years after you reach your RMD age: You have until Dec. 31 to take your RMD each year.

When should I begin taking my RMD?

While some plans allow you to delay an RMD until you retire, the simplest approach for many individuals is to take the first RMD by Dec. 31 in the year they reach their RMD age and continue taking RMDs by Dec. 31 every year after that. With this approach, you do not have to take two RMDs in the year following the year you reach your RMD age.

How are RMDs calculated by the IRS?

Your RMD amount is usually based off the IRS Uniform Lifetime Table and the fair market value (FMV) or entire interest value (EIV) of your retirement plan on Dec. 31 of the prior year.

RMDs are determined separately for each of your retirement plans and are required per individual, not per couple. If you have a spouse who is more than 10 years younger than you that is the sole beneficiary of your account a different life expectancy table is used, which can allow for a smaller RMD. In each case, the RMD is calculated by dividing the year-end account value by the applicable life expectancy factor.  Calculations for inherited IRAs are different and depend on several different factors – please see IRS Publication 590-B.

How do I determine my RMD amount?

Collect RMD requirements for each account from the company that holds the account. Work with your advisor and your tax professional to help ensure you know what you need to take out and have a plan for when you will take the distributions.

What retirement accounts are subject to RMDs?

How do I take my RMD if I have more than one retirement plan? Can I combine my RMDs?

If you have more than one type of retirement plan, your ability to combine RMDs will depend on the plans.

Accounts where RMDs must be taken separately:

Your RMDs must be calculated separately for each of the following plans, even if you have more than one plan within a type:

• 401(k) plans
• Profit sharing and some other types of employer-sponsored plans
• Inherited IRAs
• Inherited 403(b) plans

For example, if you have two 401(k) plans and two inherited IRAs, you will generally need a total of four withdrawals to satisfy your RMD requirements.

Accounts where you can combine RMDs:

If you have more than one of the following plans, RMDs do not need to be taken separately and you can take the combined distribution from one or more of your accounts:

• Traditional, SEP, or SIMPLE IRA
• 403(b) plans

However, please note, you cannot satisfy the RMD for your IRA with a distribution from 403(b) or vice versa.

Are there ways to avoid or reduce my distribution requirements?

There are strategies you can leverage, but consult us or a tax professional on whether it’s appropriate for your unique situation:

1. Consider strategic withdrawals from pretax accounts: Though you are not required to take distributions until your RMD beginning date, if you are taking income from your assets, you can consider taking distributions from your pretax accounts as soon as you are able to, at age 59½ for most people unless a specific exception applies. This strategy would allow you to spread out your taxable income over time, reducing a large jump in taxable income when you start taking RMDs. This not only can impact your overall tax bracket, but also how much you pay for healthcare coverage in retirement. Before doing so, discuss with your financial advisor and tax advisor how much to take out each year and how those distributions impact your taxes and healthcare costs today and in the future.
2. Consider a Roth conversion: Traditional IRAs and 401(k)s are subject to RMDs, so you may want to convert some assets to a Roth IRA or Roth 401(k) to avoid distribution requirements for future years. Conversions of pretax assets to a Roth are taxable so before doing so, be sure to consider all the relevant issues. Note that RMD amounts are not eligible for conversion.
3. Consider a qualified charitable distribution: One potential strategy if you are 70½ or older is to make a qualified charitable distribution (QCD) to an eligible 501(c)(3) organization of your choice, up to  $105,000 total (2024 limit, indexed for inflation in future years) for one or more organizations. Even though the RMD age is now 73, the QCD age remains 70½.
   A QCD is a nontaxable distribution from an IRA sent directly to an eligible charity. If you are subject to RMDs, it will count toward your RMD for the year — and neither you nor the eligible charity will have to pay income taxes. Keep in mind that a QCD is reported differently on your taxes than a regular charitable contribution. QCDs are not available from 401(k) plans. Consult your tax professional if you are considering QCDs.
4. If you’re working: If you are still working when you reach your RMD age and you are not a 5% or greater owner of the business, you may be able to postpone your RMD from the employer-sponsored retirement account with the employer you currently work for until you retire. This exception does not apply to IRAs, including SEP and SIMPLE IRAs.

Are RMDs required for Roth IRAs? What about inherited Roth IRAs?

RMD rules do not apply to the original Roth IRA owner. However, if you are an owner of an inherited Roth IRA, your distribution requirements depend on whether you were a spouse or non-spouse beneficiary, the year you inherited the account, if you meet certain exception criteria and how you choose to treat your inherited account.

For example, spouse beneficiaries can move the assets to their own Roth IRA instead of an inherited Roth IRA to avoid RMDs.

How can I avoid tax penalties?

Simply, the only way to avoid tax penalties is to adhere to federal law and ensure you’re withdrawing the correct RMD amount from the correct retirement accounts by the deadline. We will help explain the tax treatment for your withdrawals.

If you do not take a distribution or if you withdraw less than the required amount, you may have to pay a penalty of up to 25% of the amount not taken. The penalty is reduced to 10% if the shortfall is corrected within a two-year window. You can take more than the required amount, but the extra withdrawals don't count toward RMDs for future years.

Generally, withdrawals of pretax contributions and earnings are taxed as regular income. If you have after-tax money in your IRA, those distributions will still count toward your RMD but won’t be taxable and are distributed pro-rata with pretax contributions.

We will help determine your RMDs

RMD rules can be difficult to understand. While we do not provide legal or tax advice, we are committed to helping you set up a plan to distribute the correct amounts from each of your investment accounts to help you avoid tax penalties.