Required Minimum Distributions: What RMDs Are and How to Handle Them

The IRS gave you a tax break on every dollar you contributed to a traditional IRA or 401k. At some point, it wants that deferred tax paid. Required minimum distributions (RMDs) are the mechanism: starting at age 73 under the SECURE 2.0 Act (the age was 70½ before 2020, then 72, now 73 — and it rises to 75 for people born in 1960 or later), you must withdraw a minimum amount from your tax-deferred accounts each year. The withdrawals are taxed as ordinary income, and failure to take the full RMD results in a 25% excise tax on the amount you should have withdrawn.

Roth IRAs are exempt from RMDs during the account owner's lifetime — one of the clearest advantages of the Roth structure for people who don't need the money in retirement. Roth 401k accounts were previously subject to RMDs, but SECURE 2.0 eliminated that requirement for tax years beginning in 2024. Traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored plans (401k, 403b, 457) are all subject to RMDs.

How the RMD amount is calculated

Your RMD is calculated by dividing your account balance as of December 31 of the prior year by a life expectancy factor from IRS Uniform Lifetime Table III. At age 73, the factor is 26.5, meaning you divide your balance by 26.5 to get your required withdrawal. A $500,000 IRA at age 73 generates an RMD of about $18,868. At 80, the factor shrinks to 20.2, so the same balance would require $24,752. The divisor decreases each year, meaning the mandatory withdrawal percentage rises as you age.

If you have multiple traditional IRAs, you calculate the RMD for each separately but can aggregate and withdraw from any combination as long as the total meets the requirement. 401k accounts are different: you must take each plan's RMD from that specific plan, with no aggregation allowed. The one exception is if you're still working at age 73 and contributing to your current employer's 401k — that plan's RMDs can be deferred until you actually retire, but only for that current employer's account.

Inherited IRAs and the 10-year rule

The SECURE Act of 2019 eliminated the 'stretch IRA' strategy for most non-spouse beneficiaries. Previously, a beneficiary could take distributions over their own life expectancy — stretching tax-deferred growth for decades. Now, most non-spouse beneficiaries must fully empty an inherited IRA within 10 years of the original owner's death. If the original owner had already begun taking RMDs, the beneficiary must also take annual distributions during those 10 years — not just empty the account in year 10. The IRS issued final regulations in 2024 clarifying these annual distribution requirements after years of confusion.

Eligible designated beneficiaries — surviving spouses, minor children of the account owner, disabled individuals, and beneficiaries not more than 10 years younger than the deceased — are exempt from the 10-year rule and can still stretch distributions over their life expectancy. A surviving spouse has the most flexibility: they can roll the inherited IRA into their own IRA and treat it as their own, deferring RMDs based on their own age rather than their deceased spouse's.

Qualified charitable distributions — the tax-efficient RMD strategy

A qualified charitable distribution (QCD) allows IRA owners aged 70½ or older to transfer up to $105,000 per year (2024 limit, indexed for inflation) directly from an IRA to a qualified charity. The transfer counts toward your RMD but is excluded from your taxable income — unlike a standard RMD, which is fully taxable. For charitably inclined retirees, the QCD is one of the most powerful tax strategies available: you satisfy your RMD obligation, avoid income tax on the distribution, and complete your charitable giving simultaneously.

The QCD advantage is especially pronounced for retirees who take the standard deduction. A direct charitable contribution only reduces taxes if you itemize — meaning most retirees get no federal tax benefit from cash donations. A QCD produces a tax exclusion regardless of whether you itemize. For a retiree in the 22% bracket with a $20,000 RMD they planned to donate anyway, routing it as a QCD saves $4,400 in federal income tax compared to taking the RMD as income and writing a separate check to charity.