Required Minimum Distribution (RMD) Guide

What are Required Minimum Distributions?

Required Minimum Distributions (RMDs) are mandatory withdrawals from tax-deferred retirement accounts that you must begin taking once you reach a certain age. The IRS requires these distributions to ensure you eventually pay taxes on money that received tax-deferred growth.

Which Accounts Require RMDs?

Accounts Subject to RMDs

• Traditional IRAs: All types including SEP and SIMPLE
• 401(k) plans: Including solo 401(k)s
• 403(b) plans: For nonprofit and education employees
• 457(b) plans: Government deferred compensation
• Traditional TSP: Thrift Savings Plan
• Inherited IRAs: Special rules apply

Accounts NOT Subject to RMDs

• Roth IRAs: No RMDs during your lifetime
• Roth 401(k): No RMDs starting 2024 (SECURE 2.0 change)
• Health Savings Accounts (HSAs): No RMDs ever
• Currently employed exception: 401(k) at current employer if you don't own 5%+

RMD Deadlines

First RMD

Subsequent RMDs

• Deadline: December 31 of each year
• No exceptions: December 31 means December 31, not next business day
• Plan ahead: Don't wait until late December due to holidays and market hours

How to Calculate Your RMD

The Formula

RMD = Account Balance (December 31 of prior year) ÷ Life Expectancy Factor

Step-by-Step Calculation

1. Get your account balance: Total value on December 31 of previous year
2. Find your age: Your age on your birthday in the current year
3. Look up distribution period: Use IRS Uniform Lifetime Table
4. Divide: Balance ÷ Distribution period = Your RMD

IRS Uniform Lifetime Table (2024)

RMD Aggregation Rules

IRAs: Can Aggregate

You can total all traditional IRA RMDs and withdraw from any one or more IRAs:

• Calculate RMD for each IRA separately
• Add them all together
• Take total amount from one IRA or split among multiple
• Example: Three IRAs with RMDs of $10K, $15K, $20K → withdraw $45K from any combination

401(k)s: Cannot Aggregate

Must calculate and take RMD separately from each 401(k):

• Each 401(k) requires its own calculation
• Must withdraw from each specific account
• Cannot consolidate 401(k) RMDs like IRAs
• Strategy: Consider consolidating old 401(k)s into one IRA before RMD age

Tax Implications of RMDs

RMDs are Fully Taxable

• Ordinary income: Taxed at your marginal rate (10%-37%)
• No special treatment: Not capital gains, not tax-free
• Adds to AGI: Can push you into higher tax bracket
• Affects other taxes: May increase Medicare premiums (IRMAA)

Withholding Strategy

You can choose federal tax withholding on RMDs:

• Default: Usually 10% federal withholding
• Can opt out: Choose 0% withholding if making estimated payments
• Can increase: Withhold more to cover tax liability
• Year-end strategy: Take larger December RMD with high withholding to avoid estimated tax penalties

RMD Penalty

What to Do If You Miss an RMD

1. Take the RMD immediately: Withdraw the missed amount ASAP
2. File Form 5329: Request waiver of penalty
3. Explain the error: Provide reasonable cause
4. Show correction: Demonstrate you've fixed the problem
5. IRS often waives penalty: If corrected quickly with reasonable cause

Strategies to Minimize RMD Tax Impact

1. Qualified Charitable Distribution (QCD)

2. Roth Conversions Before RMD Age

Convert traditional IRA to Roth IRA in years before age 73:

• Pay tax now at current rates
• Reduce future RMD amounts
• Roth IRAs have no RMDs during your lifetime
• Best years: Low income years, early retirement, before Social Security

3. Strategic RMD Timing

• Take RMD in December: Keep money invested longer
• Take RMD in January: If expecting lower tax bracket next year
• Multiple distributions: Spread throughout year for dollar-cost averaging
• Large December distribution: With maximum withholding to satisfy estimated tax requirements

4. Still Working Exception

If still employed and don't own 5%+ of company:

• Can delay RMDs from current employer's 401(k)
• Must still take RMDs from IRAs and old 401(k)s
• Strategy: Roll old 401(k)s into current employer plan to delay RMDs
• RMDs must begin April 1 after year of retirement

Special RMD Situations

Inherited IRAs

Different rules apply to inherited retirement accounts:

• Spouse beneficiary: Can treat as own IRA or use inherited IRA rules
• Non-spouse beneficiary (SECURE Act): Must empty account within 10 years
• Eligible designated beneficiaries: Can stretch distributions over lifetime
• Annual RMDs: May still be required within the 10-year period

Multiple IRAs Strategy

If you have multiple IRAs, consider this approach:

• Keep high-growth investments in Roth IRA (no RMDs)
• Keep income-producing assets in traditional IRA
• Take RMDs from traditional IRA with income assets
• Let Roth IRA continue growing tax-free

RMD Year-End Checklist