Required Minimum Distributions: Rules and Strategies

Required Minimum Distributions — commonly called RMDs — are mandatory withdrawals that the IRS requires you to take from certain retirement accounts once you reach a specified age. Understanding how RMDs work is important for anyone who has accumulated assets in pre-tax retirement accounts over the course of their working years.

This article provides a general educational overview of RMD rules as they exist under current law. Tax laws change, and individual circumstances vary significantly. We encourage you to consult with a qualified financial and tax professional for guidance specific to your situation.

Which Accounts Are Subject to RMDs?

RMD rules generally apply to the following account types:

• Traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• 401(k), 403(b), and 457(b) plans (including plans from former employers)
• Most other employer-sponsored retirement plans

Roth IRAs are notably different: they are generally not subject to RMDs during the account owner's lifetime under current law. (Roth accounts inside employer plans were previously subject to RMDs but this was changed by SECURE 2.0.)

When Do RMDs Begin?

The SECURE 2.0 Act, signed into law in December 2022, changed the RMD starting age. Under current law:

• If you were born before 1951, RMDs generally began at age 72 (or 70½ for those who reached 70½ before January 1, 2020)
• If you were born in 1951–1959, your RMD starting age is 73
• If you were born in 1960 or later, your RMD starting age is 75

The first RMD may generally be delayed until April 1 of the year after reaching the applicable RMD age. Subsequent annual RMDs are due by December 31. These rules are subject to change — verify current law with a qualified tax professional or the IRS directly.

How Are RMDs Calculated?

Generally, your annual RMD is calculated by dividing your account balance as of December 31 of the prior year by a life expectancy factor from IRS tables. The IRS publishes these tables in Publication 590-B. The applicable table typically depends on your age and, in some cases, the age of your designated beneficiary.

Each account subject to RMDs is generally calculated separately, although IRAs can often be aggregated — meaning you can take the total RMD for all traditional IRAs from one or more of those accounts. Employer plan RMDs, however, must generally be taken from each plan separately.

Failing to take a required minimum distribution — or taking less than the required amount — can result in a significant tax penalty. Understanding your RMD obligations is worth careful attention each year.

What Happens If You Miss an RMD?

Under SECURE 2.0, the excise tax for failing to take a required minimum distribution was reduced from 50% to 25% of the shortfall (and further reduced to 10% if corrected in a timely manner). While this is lower than the prior penalty, it remains a significant potential cost. Most financial custodians and advisors can help clients track and manage their RMD obligations annually.

RMDs and Tax Planning

Because RMDs are included in ordinary taxable income, they can have a meaningful impact on your overall tax situation in retirement. Large RMDs can push income into higher tax brackets, affect the taxation of Social Security benefits, and trigger income-related Medicare premium surcharges (IRMAA).

For this reason, RMD planning is often integrated with broader retirement income planning — including decisions about Roth conversions in pre-RMD years, Social Security claiming strategy, and the sequencing of withdrawals from different account types.

Inherited IRAs and RMD Rules for Beneficiaries

The rules governing RMDs for inherited retirement accounts changed significantly with the SECURE Act (2019) and have continued to evolve. The rules applicable to a beneficiary depend on several factors including their relationship to the original account owner, the original owner's age at death, and the type of account inherited. This is a complex area where qualified tax and legal guidance is particularly important.

Working With an Advisor on RMD Strategy

For many retirees, RMDs represent one of the more consequential annual financial decisions — both in terms of tax impact and portfolio management. Pine Valley Investments advisors work with clients to incorporate RMD obligations into their broader financial plan, coordinate with tax professionals, and evaluate strategies that may be appropriate given individual circumstances.