10 Important Things You Should Know About RMDs [Guide]

Your retirement funds cannot remain in your account indefinitely. When you reach a certain age in retirement, you’ll need to start making retirement withdrawals called Required Minimum Distributions (RMDs).

The IRS requires retirees to withdraw a portion of their tax-deferred retirement savings each year, and those withdrawals can have a significant impact on your financial plan. This RMD guide covers everything from understanding required minimum distributions to key facts about RMDs retirees should know, as well as RMD mistakes to avoid.

What is a required minimum distribution?

A Required Minimum Distribution (RMD) is the smallest amount you must withdraw each year from certain types of retirement accounts once you are 73 years old.

Because these accounts, like traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, and 403(b)s, were funded with pre-tax dollars, the IRS eventually requires distributions so it can collect taxes on that income. As such, once you withdraw the amounts, they become taxable income.

Related: How Do 401(k) Catch-Up Contributions Work?

You Must Start Taking RMDs at Age 73

Under current RMD rules, you must begin taking your RMD when you reach 73. You can delay your first withdrawal until April 1 of the year following the year. After that, you must take subsequent distributions by December 31 each year.

Keep in mind, however, that if you delay your first withdrawal until the following year, you’ll need to take two distributions in the same year. This could push you into a higher tax bracket, which may not be advisable. Make sure to consult your tax professional to create a tax-smart strategy.

Under the SECURE 2.0 Act, the RMD age will increase to 75 starting in 2033.

Your RMD Is Your Balance Divided by Your Life Expectancy

The amount you’re required to take each year depends on both your account balance and your life expectancy as determined by the IRS.

The general formula for calculating your RMD is as follows:

Account balance (as of December 31 of the previous year) ÷ IRS Life Expectancy Factor

For example, if you had $500,000 in a traditional IRA at the end of last year and your life expectancy factor is 25.6, your RMD would be about $19,530 for the current year.

Financial institutions typically provide an RMD estimate, but ultimately, you are responsible for ensuring you withdraw the correct amount.

Your RMD is 3.77% Of Your Account Balance at Age 73

According to the IRS’ Uniform Lifetime table, at 73, your life expectancy factor is 26.5, which translates to 3.77%. That amounts to $18,850 if you have $500,000 in your account. The percentage steadily increases until reaching 50% at age 120.

You can consult the RMD table percentage equivalencies from Nationwide to quickly see the percentage of your account balance required.

RMDs Have Different Rules for Different Accounts

Not all retirement accounts follow the same RMD rules. For example:

• IRAs: You can aggregate multiple IRA balances and take your total RMD from one or more of them. However, you need to calculate the RMD for each IRA separately.
• 403(b)s: Similarly, you need to separately calculate the RMD for each 403(b) you own, but you can withdraw the total amount from a single account.
• 401(k): Each account requires its own, separate RMD withdrawal.
• Roth accounts: Roth IRAs are exempt from RMDs during your lifetime, but inherited Roth IRAs are not.

Understanding which accounts are subject to which rules helps you avoid penalties and plan your withdrawals strategically.

It’s Your Responsibility to Take the Correct RMD

Even though your financial institution or retirement plan administrator may help you calculate your RMD, the IRS holds you accountable for ensuring the right amount is withdrawn on time.

If you have multiple accounts, you must calculate each RMD separately. If you own more than one traditional IRA, you can take the total RMD from any combination of those IRAs. Workplace retirement plans, like 401(k)s, must each satisfy their own RMD.

RMDs Are Taxable Income

RMDs count as ordinary taxable income, which means they can affect your overall tax picture, including your tax bracket, Social Security taxation, and Medicare premiums (IRMAA).

If your retirement account included any after-tax contributions (for example, non-deductible IRA contributions), only the earnings portion of your withdrawal is taxable.

Qualified Charitable Distributions are a powerful strategy to consider if you give to charity or if you don’t need the money from your RMD. As of 2025, you can donate up to $108,000 per year directly to a qualified charity, satisfying your RMD without increasing your taxable income.

Related: How You Can Save by Considering Charitable Giving

You Can Delay Your RMD If You’re Still Working

If you’re still working at age 73, you can delay RMDs from your employer’s 401(k) until the year you retire. This is known as the “still-working exception,” and it comes with a few important limits. It only applies to your current employer’s retirement plan, and you’re not eligible if you own 5% of the company you work for.

Related: How to Smoothly Navigate the Transition to Retirement

You Can Withdraw More Than the Minimum

The IRS requires a minimum withdrawal, but of course, you can also withdraw more than your RMD if needed. Just keep in mind that additional withdrawals can increase your taxable income for the year.

It’s smart to coordinate larger withdrawals with your overall financial strategy to reduce your tax burden. Many retirees work with CERTIFIED FINANCIAL PLANNER™️ professionals to time withdrawals in a way that balances cash flow needs with tax efficiency.

Note that you do not have to take your RMD all at once. You can split it into monthly, quarterly, or semi-annual withdrawals to manage cash flow and taxes more smoothly.

RMD Taxes Can Be Automatically Withheld

Many financial institutions let you withhold federal or state taxes directly from your RMD to simplify tax payments. In fact, this is the default for some banks and institutions, which you need to opt out of if you do not want taxes to be automatically withheld.

Be sure to check with your bank to see what their policy is and align it with your tax strategy.

There Is a Penalty for Not Taking Your RMD On Time

Missing your RMD can cost you! The IRS imposes a 25% excise tax on the amount you should have withdrawn but didn’t. That tax can be reduced to 10%, however, by filing Form 5329 with your federal tax return for the year you didn’t withdraw the full, required RMD.

It’s best to set up reminders or automatic distributions with your financial institution to avoid any unnecessary stress or taxes.

Integrating RMDs With Your Retirement Plan

If you’re retired and over the age of 73, your RMD needs to be factored into your retirement plan and income tax strategy moving forward. Hopefully, this RMD guide has been useful in helping you understand how and when to take them to avoid penalties, manage your tax bracket, and extend the life of your savings.

At Chatterton & Associates, we can help align your RMD strategy with your overall retirement plan, so you can feel confident that your money is working for you in retirement. Contact us today to learn more.

Sincerely

The Team at Chatterton & Associates