Glossary · Definition
Required minimum distributions (RMDs)
Required Minimum Distributions are mandatory annual withdrawals from traditional IRAs and 401(k)s starting at age 73 (born 1951-1959) or 75 (born 1960+). The IRS forces you to withdraw a percentage of your balance each year, generating taxable income whether you need it or not.
Definition
Required Minimum Distributions are mandatory annual withdrawals from traditional IRAs and 401(k)s starting at age 73 (born 1951-1959) or 75 (born 1960+). The IRS forces you to withdraw a percentage of your balance each year, generating taxable income whether you need it or not.
What it means
Each year after the start age, you must withdraw at least <code>balance / IRS_distribution_period</code> where the period comes from IRS Uniform Lifetime Table (about 27.4 years at age 73, declining to ~6 years at age 95). At 73, the RMD is roughly 3.65% of balance; at 80 it’s 4.95%; at 90 it’s 8.2%. Failure to take RMDs costs a 25% penalty on the missed amount (reduced from 50% by SECURE 2.0 in 2022). RMDs apply to traditional IRAs and 401(k)s, not Roth IRAs (no RMDs ever), and not Roth 401(k)s (RMD-free starting 2024 under SECURE 2.0).
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Formula
annual_RMD = traditional_balance / IRS_distribution_period_for_age
Why it matters
RMDs can push high-balance retirees into higher tax brackets and force unwanted income generation. A $2M traditional IRA at age 73 has a $73K RMD that’s taxable as ordinary income. Strategies to manage: (1) Roth conversions in low-income early-retirement years (between job exit and SS/RMD start), (2) Qualified Charitable Distributions (donate up to $108K of RMD directly to charity, avoiding income inclusion), (3) consolidating accounts to track total balance and required distribution.
Example
$2M traditional IRA at age 73 (distribution period 27.4): RMD = $2,000,000 / 27.4 = $72,993. At 80 (period 20.2): RMD = $2,000,000 / 20.2 = $99,010. The percentage rises as you age, accelerating taxable income.
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Frequently asked questions
Do Roth IRAs have RMDs?
No — never, even after death (only inherited Roth IRAs have a 10-year rule for non-spouse beneficiaries since 2020). One of Roth’s estate-planning advantages.
Can I skip a year if I don’t need the money?
No — 25% penalty (was 50% before 2022) on the missed amount. The IRS doesn’t care if you need the money; you must withdraw.
Can I convert RMDs to Roth?
No. RMDs themselves can’t be converted (the conversion limitation specifically excludes RMD amounts). You can convert ABOVE the RMD if you want, increasing this year’s tax bill but reducing future RMDs.
Related terms
- DefinitionRoth vs traditional IRARoth IRA: contributions are after-tax, withdrawals are tax-free. Traditional IRA: contributions are pre-tax (deductible), withdrawals are taxed as ordinary income. Pick Roth if you expect higher tax bracket in retirement than now; pick traditional if you expect lower.
- Definition401(k) employer match401(k) employer match is when your employer contributes additional money to your retirement account based on what you contribute. Typical formula: 50% of your contributions up to 6% of salary. Skipping the match is leaving money on the table — typically a 50-100% instant return.