You can reduce or eliminate them by converting traditional accounts to Roth IRAs before RMDs begin. You'll pay taxes on the conversion, but it wipes out future RMDs on that money. Roth IRAs have no RMDs during your lifetime. Qualified Charitable Distributions and spending from traditional accounts early are other ways to shrink the bill.

Do I have to spend my RMD?

Nope. You have to withdraw the money from the retirement account and pay the taxes, but after that it's yours to do whatever you want with — including reinvesting it in a regular brokerage account. The requirement is the withdrawal and the tax, not how you use the cash.

RMD (Required Minimum Distribution) Definition and Meaning

The minimum amount you must withdraw each year from traditional retirement accounts starting at age 73 — it's how the IRS finally collects taxes on money you've been deferring.

Here's the deal: when you put money into a traditional 401(k) or IRA, the government gave you a tax break. Eventually, they want their cut. Required Minimum Distributions are the mechanism — once you hit age 73 (rising to 75 in 2033, thanks to the SECURE 2.0 Act), you must start pulling money out and paying income tax on it.

How much do you have to withdraw? Take your account balance as of December 31 of the prior year and divide it by a life expectancy factor from IRS tables. At 73, that factor is roughly 26.5, which means you'd withdraw about 3.8% of the balance. The percentage creeps up each year as the factor shrinks.

RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and most other tax-deferred accounts. The big exception: Roth IRAs are exempt from RMDs during your lifetime. That's one of the Roth's most compelling perks — your money can keep growing tax-free as long as you live.

Skip your RMD (or take less than required) and the penalty is steep: a 25% excise tax on whatever you didn't withdraw. That's actually an improvement — it used to be 50%. If you catch the mistake within two years, the penalty drops to 10%. Either way, staying on top of RMDs is essential.

Smart RMD planning can save you real money. Consider doing Roth conversions before RMDs kick in — converting reduces the traditional balance that future RMDs are calculated on. You can also use Qualified Charitable Distributions (QCDs) to satisfy your RMD by sending money directly to charity, tax-free. And watch the timing of your first RMD: you can delay until April 1 of the year after you turn 73, but that means two RMDs in one year, which could bump you into a higher tax bracket.

Frequently Asked Questions