RMDs: How Required Minimum Distributions Work — and How to Shrink Them
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For decades the deal on your 401(k) and traditional IRA was simple: no tax now, tax later. Required minimum distributions are "later" arriving on a schedule. Starting at age 73 or 75, the IRS requires you to withdraw a minimum slice of every pre-tax retirement account each year and pay ordinary income tax on it — whether you need the money or not. Handled passively, a large IRA can force out six-figure taxable income in your 80s, spike your Medicare premiums, and tax your Social Security. Handled early, most of that is avoidable.
The mechanics: one division problem
Each year's RMD is your account balance on December 31 of the previous year, divided by an IRS life-expectancy factor for your age. The factors come from the Uniform Lifetime Table: 26.5 at age 73, about 20.2 at 80, 12.2 at 90. Divide, withdraw, pay ordinary income tax. Our RMD calculator does the tables for you and projects twenty years forward.
Two features of the math surprise people:
- The percentage rises every year. At 73 the required withdrawal is about 3.8% of the balance; at 85 it's 6.25%; at 95 it's over 11%. Early on, a well-invested account often grows faster than the RMD drains it — meaning your taxable forced income can keep rising through your 80s.
- It's based on last year's balance. A market crash in March doesn't shrink this year's RMD; it was fixed by last December's statement. (That's what made 2009 and 2020 painful enough that Congress waived RMDs both years.)
When you start: born 1951-1959, age 73; born 1960 or later, age 75
SECURE 2.0 staggered the start age. There's a one-time option to delay your first RMD until April 1 of the following year — but the second RMD is still due that same December, stacking two taxable withdrawals into one year. Unless your first-RMD year is unusually high-income, take the first one on schedule.
The penalty for missing an RMD is 25% of the shortfall (down from the old 50%), reduced to 10% if you fix it within about two years. It's the most expensive calendar mistake in personal finance; a December reminder is worth setting now.
Which accounts are on the hook
RMDs apply to traditional IRAs, SEP and SIMPLE IRAs, and pre-tax 401(k)/403(b)/457(b) money. Roth IRAs never have lifetime RMDs, and since 2024 Roth 401(k)s don't either. Two logistical rules worth knowing: all your IRAs can be aggregated — total the RMDs, take the sum from whichever IRA you like — but each 401(k) must distribute its own separately. And if you're still working at RMD age, your current employer's plan usually waits until you actually retire.
Why big RMDs hurt more than the tax bill
A forced $80,000 distribution doesn't just owe income tax. It raises your modified adjusted gross income, which can:
- make up to 85% of your Social Security benefits taxable,
- trigger Medicare IRMAA surcharges — higher Part B and D premiums costing an extra $1,000-5,000+ per person per year, based on your income from two years prior,
- push capital gains and dividends from the 0% bracket into the 15-20% brackets.
This is why RMD planning is really bracket planning. Check what a projected distribution does to your marginal rate with the tax bracket calculator.
Three legal ways to shrink future RMDs
1. Roth conversions in the gap years. Between retirement and RMD age, many people's taxable income collapses — the 10-22% brackets sit mostly empty. Converting slices of the traditional IRA to Roth in those years pays tax at low rates and permanently removes the converted dollars from every future RMD. The classic move is bracket-filling: each December, convert exactly enough to reach the top of your chosen bracket. Run the rate-vs-rate math in the Roth conversion calculator.
2. Qualified charitable distributions from 70½. A QCD sends money directly from your IRA to charity — up to $108,000 per person in 2025 — and counts toward your RMD while never touching your taxable income. If you give to charity at all, giving from the IRA after 70½ is strictly better than giving cash: same gift, lower AGI, smaller IRMAA exposure.
3. Spend pre-tax money first. The instinct to "preserve the IRA" and live off taxable savings early in retirement quietly maximizes future RMDs. Drawing down pre-tax accounts at 12-22% in your 60s — sized with the retirement withdrawal calculator — often beats being forced out at 24-32% in your 80s. Coordinating this with a delayed Social Security claim (see when to claim) is the standard playbook: spend the IRA in the gap years, let the benefit grow to 70.
If you don't need the money
An RMD forces money out of the tax shelter, not into consumption. Reinvest it in a taxable brokerage account the same day if you like — the requirement is that it leaves the IRA and gets taxed. Some retirees use RMDs to fund grandchildren's 529 plans (modeled in the college savings calculator), pay Roth conversion taxes, or simply rebuild the taxable bucket that gives future flexibility.
The bottom line
RMDs aren't a scandal — they're the tax bill you deferred, arriving as agreed. The mistake is letting the schedule catch you passively. A retiree who spends their 60s doing measured Roth conversions, claims Social Security at 70, and gives via QCDs can watch the same lifetime income land two or three brackets lower than a neighbor who "saved taxes" by never touching the IRA until 73. Project your own forced withdrawals with the RMD calculator — the earlier the number is on the table, the more options you have.