If you’ve saved diligently in your IRA, you may be wondering when the government expects you to start taking money out. IRA required distributions are a crucial part of retirement planning, and understanding them can save you thousands in penalties and taxes.
What Are IRA Required Distributions?
IRA required distributions—also known as Required Minimum Distributions (RMDs)—are mandatory annual withdrawals the IRS requires from traditional IRAs once you reach a certain age.
These withdrawals are designed to ensure that the money you saved tax-deferred eventually becomes taxable. While Roth IRAs are exempt during your lifetime, traditional IRAs, SEP IRAs, and SIMPLE IRAs are subject to RMDs.
When Do You Start Taking RMDs?
Currently, you must start RMDs at age 73. If you were born between 1951 and 1959, your RMDs begin the year you turn 73. If you’re born in 1960 or later, the starting age moves to 75.
Important note: You have until April 1 of the year after you turn the required age to take your first RMD. However, delaying means you’ll need to take two RMDs in one year, which could increase your tax bill.
How Are RMDs Calculated?
The IRS provides a uniform lifetime table to determine your RMD based on:
- Your age as of December 31 of the withdrawal year
- Your IRA balance as of December 31 of the prior year
RMD Formula:
RMD = IRA Balance / Distribution Period (from IRS table)For example, if you’re 73 and your IRA was worth $500,000 at the end of last year, your RMD for this year might be roughly $18,868.
Penalties for Missing RMDs
Missing an RMD used to come with a hefty 50% penalty. Fortunately, recent tax law updates have reduced this to 25%, and potentially only 10% if corrected promptly. Still, it’s a mistake you want to avoid.
Which Accounts Require RMDs?
The following accounts are subject to IRA required distributions:
- Traditional IRA
- SEP IRA
- SIMPLE IRA
- 401(k), 403(b), and other workplace plans (if not still employed)
Roth IRAs do not require RMDs during the original account holder’s lifetime.
Strategies to Manage Your RMDs
There are several strategies you can use to minimize the tax impact of your IRA required distributions:
1. Qualified Charitable Distributions (QCDs)
Donate up to $100,000 annually directly from your IRA to a qualified charity. This counts toward your RMD but isn’t taxed.
2. Roth Conversions
Before reaching RMD age, consider converting traditional IRA funds into a Roth IRA. You’ll pay taxes on the conversion, but reduce future RMDs.
3. Aggregate RMDs
If you have multiple IRAs, you can calculate the RMD for each but withdraw the total amount from one account. This can help with cash flow planning.
RMDs for Beneficiaries
If you inherit an IRA, your RMD rules differ. Most non-spouse beneficiaries must empty the account within 10 years, with some required to take annual RMDs within that window.
Spouses may have more flexibility, including treating the account as their own or rolling it into their own IRA.
Reporting and Withholding
IRA custodians typically send Form 1099-R, which shows your RMD distribution. Be sure to:
- Verify the amount
- Report it on your tax return
- Adjust withholding or estimated payments if needed
Common Mistakes to Avoid
- Missing deadlines (especially your first RMD)
- Taking too little and facing penalties
- Forgetting inherited IRA rules
- Failing to plan for taxes on large RMDs
Final Thoughts on IRA Required Distributions
IRA required distributions are more than just a formality—they’re a key part of your retirement plan. By understanding the rules, calculating your minimums correctly, and planning ahead, you can manage taxes and avoid unnecessary penalties. You can find more information and worksheets to calculate your RMD here: Required minimum distribution worksheets | Internal Revenue Service
