RMD (Required Minimum Distribution)
Definition
Mandatory annual withdrawals from traditional retirement accounts (401k, traditional IRA) that must begin at age 73, with the amount based on your account balance and life expectancy.
Required Minimum Distributions are the government's way of collecting deferred taxes on traditional retirement accounts. Since you got a tax deduction when you contributed, the IRS eventually requires you to withdraw the money and pay income tax on it. Under the SECURE 2.0 Act, RMDs must begin at age 73 (increasing to 75 in 2033).
The RMD amount is calculated annually by dividing your December 31 account balance from the prior year by a life expectancy factor from IRS tables. At age 73, the factor is approximately 26.5, meaning you'd withdraw about 3.8% of the balance. The percentage increases each year as the life expectancy factor decreases.
RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and most other tax-deferred retirement accounts. Critically, Roth IRAs are exempt from RMDs during the owner's lifetime — one of their major advantages. Inherited IRAs have their own RMD rules based on the beneficiary's relationship to the original owner.
Failure to take your full RMD results in a 25% excise tax on the amount not withdrawn (reduced from the previous 50% penalty). The penalty can be reduced to 10% if corrected within two years. This makes RMD compliance essential for retirees.
Strategic RMD planning involves: considering Roth conversions before RMDs begin (to reduce future required withdrawals), coordinating RMDs with other income to manage tax brackets, using Qualified Charitable Distributions (QCDs) to satisfy RMDs with tax-free donations, and timing the first RMD (you can delay until April 1 of the year after you turn 73, but then you'll take two RMDs in that year).
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
Can I avoid RMDs?
You can avoid RMDs by converting traditional accounts to Roth IRAs (Roth conversions trigger tax but eliminate future RMDs). Roth IRAs have no RMDs during the owner's lifetime. You can also reduce RMDs by spending from traditional accounts first or making Qualified Charitable Distributions.
Do I have to spend my RMD?
You must withdraw the money from the retirement account, but you can invest it in a regular taxable brokerage account or do anything else with it. The requirement is the withdrawal and the associated tax payment — how you use the funds afterward is up to you.