What Is a Required Minimum Distribution (RMD)?
Jennifer McKay DipPFS, FPQP
A Required Minimum Distribution (RMD) is a mandatory annual withdrawal from certain retirement accounts once you reach a specific age. The Internal Revenue Service (IRS) requires these withdrawals because accounts like Traditional IRAs and most pre-tax employer plans were designed to be tax-deferred, not tax-free forever. At some point, the IRS expects those deferred taxes to become taxable income.
A helpful way to think about it:
Traditional (pre-tax) accounts: You generally received a tax benefit up front (deductible contributions or pre-tax payroll deferrals). RMDs ensure the government eventually collects income tax as the money comes out.
Roth accounts: You generally paid tax up front. In many cases, Roth accounts have different—or no—lifetime RMD rules for the original owner (more on that below).
Many people search for information on “RMD distribution” and “RMD withdrawal.” In this context, they mean the same thing: the required amount you must take out each year.
When Do RMD Rules Begin?
The current starting age is 73 (for many retirees)
Under current law, the “required beginning date” for RMDs is tied to age. For many people today, that age is 73. (The law has changed multiple times in recent years, which is a big reason the topic feels confusing.)
What if you turned 72 under the old rules?
If you’ve been reading about RMDs for a while, you might remember age 70½ (older rule), then age 72 (SECURE Act), and now age 73 (SECURE 2.0 changes). The important point is that your RMD start date depends on your age cohort and the law in effect when you reach the threshold.
The first-year deferral rule (proceed with caution)
Here’s a nuance many retirees miss: you can delay your first RMD until April 1 of the following year. This is sometimes called the “first-year deferral” rule.
That flexibility comes with a tradeoff. If you defer your first RMD into the next year, you may end up taking:
Two taxable distributions in one calendar year (the deferred first RMD plus the second-year RMD due by December 31).
For retirees who are close to a bracket threshold, this can unintentionally spike taxable income in the second year, especially when combined with Social Security, pensions, or portfolio income.
Which Accounts Are Subject to RMD Rules?
RMDs typically apply to tax-deferred retirement accounts, including:
Traditional IRA
401(k) (and similar employer plans like 403(b) and 457(b), depending on plan rules)
SEP IRA
SIMPLE IRA
Roth accounts (important exceptions)
Roth IRA: No lifetime RMDs for the original owner.
Roth 401(k): Recent law changes eliminated lifetime RMDs for Roth accounts in employer plans starting in 2024 (though plan administration and distributions still require attention).
If you’re reading older resources, this is where you may see conflicting information, especially around Roth 401(k)s.
Related reading: What Happens to Your Roth IRA If You Retire to Europe?
How Are RMDs Calculated?
RMD calculations sound intimidating until you see the actual mechanism. In most cases, it’s a simple formula:
Take your account balance as of December 31 of the prior year, then
Divide it by a “life expectancy factor” from an IRS table.
For most account owners, the IRS table used is the Uniform Lifetime Table. The factor decreases as you get older, which means your required distribution becomes a larger percentage of your account each year.
Key clarifications
It’s not a flat percentage.
It generally increases over time because the IRS assumes a shorter remaining life expectancy as you age.
You calculate it every year based on the prior year-end balance and the factor for your age.
Simple example
Assume:
Your Traditional IRA balance on December 31 last year was $500,000
You are 73 this year
The Uniform Lifetime Table factor at 73 is commonly shown as 26.5
Your estimated RMD would be:
$500,000 ÷ 26.5 ≈ $18,868
That doesn’t mean the IRS taxes you at some special RMD rate. It simply means you must withdraw at least that amount, and it will generally be included in taxable income (unless it’s a qualified distribution from a Roth account, which has different tax rules).
What is an RMD Tax Burden?
Missing an RMD is one of the most expensive “small mistakes” in retirement planning.
The penalty can be 25% (and sometimes reduced)
If you fail to take an RMD (or take less than required) the IRS can assess an excise tax of 25% of the shortfall. So, building on the example above, if you should have taken an $18,000 distribution but only took $15,000, you would be taxed 25% on $3,000—so, you’d owe the IRS an additional $750. (Ugh.)
Note: In some cases, that penalty can be reduced (often to 10%) if corrected within a specified time window and handled properly.
In practice, the risk isn’t just the penalty, it’s in the administrative scramble it produces. In many advisory firms, October through December becomes operationally intense because the distribution must be completed by December 31. If clients wait until the last minute, account transfers, settlement timelines, or paperwork delays can create unnecessary stress for everyone involved –and when it comes to your finances, you want your financial team to be operating at its peak.
The correction process (high level)
If you miss an RMD:
Take the missed distribution as soon as possible, and
Work with a tax professional to file for correction/waiver as appropriate.
Even when penalties are waived, it’s not something you want to deal with late in the year while also handling year-end tax planning.
RMD Rules for Inherited IRAs
Inherited IRA rules are both high-interest and high-impact because they can force large distributions during a beneficiary’s peak earning years. This is where many families get surprised.
The 10-year rule (for most non-spouse beneficiaries)
For many non-spouse beneficiaries inheriting an IRA from someone who died after 2019, the general rule is:
The account must be fully distributed by the end of year 10 following the year of death.
This is commonly referred to as the “10-year rule.” It replaced the old “stretch IRA” approach for many beneficiaries.
Annual withdrawal expectations (the nuance people miss)
Here’s the nuance that confuses people (and has been subject to evolving guidance):
In some cases, beneficiaries may need to take annual distributions in years 1–9, especially if the original account owner had already reached their required beginning date (i.e., had started taking RMDs).
In other cases (for example, if the account owner died before their RMDs began), a beneficiary may not be required to take annual distributions, so long as the account is emptied by the end of year 10.
The IRS has issued temporary relief in recent years because of how confusing this became for beneficiaries, with penalty relief for certain missed inherited RMDs while rules were being clarified. The practical takeaway is simple: do not assume you can “wait until year 10” without confirming which fact pattern applies.
Tax treatment
Inherited Traditional IRA distributions are generally taxed as ordinary income to the beneficiary.
Inherited Roth IRA distributions are often tax-free if rules are met, but the depletion timeline can still apply. Even “tax-free” distributions can still create planning constraints because you must move the money out by the deadline.
No early withdrawal penalty (even if under 59½)
Inherited IRAs have a helpful rule: if you inherit an IRA and take distributions before age 59½, the typical early-withdrawal penalty generally does not apply. That doesn’t make the distribution painless—ordinary income is still ordinary income—but it prevents an additional layer of penalty for younger beneficiaries.
Can You Take More Than Your Required Minimum Distribution?
Yes, and this is under-covered in most beginner guides.
Your RMD is a minimum, not a cap. You can always withdraw more than required.
In fact, taking more can be a highly strategic and financially savvy move in some situations:
It reduces the future balance of the account, which can reduce future RMD amounts.
It can “smooth” taxable income across years—especially in the period before Social Security begins or before RMDs rise substantially with age.
This is where planning becomes more art than math. The RMD formula is fixed, but your decision about when to take distributions and how much to take beyond the minimum can materially change your lifetime tax profile.
Where Does an RMD Go?
A practical question people often ask: once the RMD is taken, where does it go?
Most custodians allow you to send an RMD to:
A bank account
A taxable brokerage account
Another receiving account of your choosing (subject to custodian rules)
Many retirees choose to move the distribution into a brokerage account because they may not need the cash for spending—and they want to reinvest it.
Clearing up a common “double taxation” misconception
An RMD is taxable when it comes out of a Traditional IRA because it’s treated as ordinary income.
But once the money is outside the IRA, the principal isn’t taxed again simply for existing in a brokerage account. What may be taxed later is:
Capital gains if investments increase in value and are sold, and/or
Dividends/interest earned in the taxable account.
In other words: the distribution is one tax event; what happens after depends on how the funds are invested and realized.
How RMDs Interact With Social Security and Other Income
RMDs don’t exist in a vacuum. They sit on top of everything else you receive in retirement, and that’s why the timing can matter so much.
Social Security taxation
RMDs can increase your “combined income,” which can cause a greater percentage of Social Security benefits to become taxable under U.S. rules.
Medicare IRMAA brackets
RMDs also increase your modified adjusted gross income (MAGI), which can push you into higher Medicare IRMAA premium tiers. This is one reason retirees who “don’t feel wealthy” can still get hit with higher Medicare premiums: the size of the tax-deferred account and the required distribution schedule can create income spikes.
The operational reality
Because of these interactions, many advisors try to avoid a December surprise. Instead of waiting for the RMD deadline and then pushing out a large lump sum, planning often involves spreading distributions across the year, coordinating with other income sources, and using the RMD as a funding source for known expenses (travel, car purchases, gifting), so year-end doesn’t become a scramble.
What If You Live Abroad?
This guide is intentionally U.S.-first and domestic in framing. Still, one cross-border principle is important:
Your RMD obligation does not disappear just because you live outside the United States. You must still take the RMD on the U.S. timeline and under the same calculation rules.
What changes, potentially, is taxation:
The RMD is generally still taxable in the U.S.
Your country of residence may also treat the distribution as taxable income, depending on local law and the applicable tax treaty (if any).
That’s why cross-border coordination matters more as you approach age 73—especially if you’re moving abroad with substantial IRA balances or inherited accounts with a 10-year depletion schedule.
Related reading: Why Americans Moving to France Face Custodial and Banking Surprises
Final Thoughts: RMD Rules Are Mechanical, but Planning Is Not
RMD rules are formula-driven:
A required starting age,
A table-based calculation,
A firm deadline,
A penalty for missing it.
But the impact of RMDs depends on your life context:
When you claim Social Security,
Whether you have pensions or rental income,
How large your IRA balances are,
Whether you inherit an account with a 10-year timeline,
And where you live.
The best time to review RMD exposure is well before age 73—often in the years when you still have flexibility to shape your income profile. A proactive plan doesn’t “avoid” RMDs, but it can reduce surprises, lower stress, and, in many cases, improve long-term after-tax outcomes. If you'd like to discuss how strategy around RMDs fits into a broader financial plan that's been custom-made for your life, feel free to reach out to our team.
References
Disclaimer
This material is purely intended to be general and educational in nature, and should not be construed as specifically-tailored investment, financial planning, tax, legal, or other professional advice. Information and data contained herein is as-of the date of publication, and may be subject to change in the future without notice. Any investment performance referenced is purely past performance, which is no guarantee of any future performance. Nothing contained herein should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or other financial product or investment strategy. All investment, tax, and financial planning strategies involve risk that you should be prepared to bear. You are highly encouraged to consult with professionals of your choosing before taking any action based on this material.
