If you have meaningful balances in tax-deferred retirement accounts — a traditional IRA, a 401(k), a 403(b), or similar — at some point in your sixties or seventies the IRS is going to start requiring you to withdraw a minimum amount each year and pay tax on it. These mandatory withdrawals are called Required Minimum Distributions, or RMDs. They are one of the most reliably mishandled features of the US retirement system, and the penalty for getting them wrong is real.

This piece walks through what RMDs are, why they exist, when they start under current law (which has changed three times in five years), how the calculation works, the smart planning moves available, and the common mistakes that cost retirees the most.

Why RMDs exist in the first place

Traditional retirement accounts get a tax deal: you contribute pre-tax dollars, the money grows tax-deferred, and you pay ordinary income tax only when you withdraw. The IRS has been generous with the deferral, but it doesn’t intend the deferral to be permanent. RMDs are the mechanism that forces you to start paying the tax bill at some point — they prevent indefinite deferral and ensure that tax-deferred dollars eventually become tax-paid dollars before they pass to heirs.

The rules apply to:

  • Traditional IRAs, SEP-IRAs, and SIMPLE IRAs — yes, RMDs apply.
  • 401(k), 403(b), and 457(b) plans — yes, RMDs apply, with one notable exception (see below).
  • Roth IRAs — no RMDs for the original owner. (Roth IRAs have no RMDs during the owner’s lifetime, ever.)
  • Roth 401(k) plans — no RMDs for the original owner, as of 2024 under SECURE 2.0. Before 2024, Roth 401(k)s had RMDs even though Roth IRAs didn’t, which was a quirk of how the rules evolved. SECURE 2.0 fixed it.
  • Inherited IRAs — yes, RMDs apply, under different and stricter rules than original-owner accounts. Most non-spouse beneficiaries are now subject to a 10-year rule under SECURE 1.0; we’ll cover this in a separate piece.

The “still working” exception: if you are still actively employed by the company sponsoring your 401(k) (and you don’t own 5%+ of the company), you can typically delay RMDs from that 401(k) until you actually retire. The exception applies to that single workplace plan only — your IRAs and any 401(k)s from prior employers still follow the standard rules.

When RMDs start — three different ages, depending on when you were born

This is the single most confused area of RMD planning, because Congress has changed the rules three times in five years. The age at which RMDs begin depends on your birth year.

Birth year RMDs begin at Source
Before 1951Age 72 (was 70½ before SECURE 1.0)SECURE Act (2019)
1951–1959Age 73SECURE 2.0 (2022)
1960 or laterAge 75SECURE 2.0 (2022, effective 2033)

The practical implication is that someone born in 1950 has been taking RMDs since 72; someone born in 1951 doesn’t have to start until 73; and someone born in 1960 or later won’t have to start until 75. The bunching of these phase-ins can produce confusing results in family planning conversations, where one sibling started RMDs years before another.

There’s also a one-time delay option for your first RMD: you can defer it to April 1 of the year after the year you reach the trigger age. So someone hitting age 73 in 2026 could either take their first RMD by December 31, 2026, or defer it to April 1, 2027. The catch: if you defer, you must take two RMDs that following year (the deferred one by April 1, and the next one by December 31). Two RMDs in a single tax year often pushes the retiree into a higher bracket, eats Social Security taxability thresholds, and can trigger IRMAA Medicare premium surcharges. The deferral is rarely the right move once you do the math.

How the RMD amount is calculated

The arithmetic is straightforward in principle:

RMD = (Prior year-end account balance) ÷ (Life-expectancy factor)

The life-expectancy factor comes from one of two IRS tables published in the regulations under §401(a)(9):

  1. Uniform Lifetime Table. This is what most people use — single retirees, married retirees whose spouse is the same age or up to 10 years younger, retirees with non-spouse beneficiaries.
  2. Joint Life and Last Survivor Table. This applies if your sole beneficiary is a spouse who is more than 10 years younger than you. The factors are larger (so the RMD is smaller) because the IRS assumes a longer joint life span.

The factor declines each year of your life. At age 73, the Uniform Lifetime Table factor is in the high 20s, producing an RMD of roughly 3.7% of the prior-year-end balance. At 80, the factor is around 20, producing an RMD of about 5%. At 90, the factor is around 12, producing an RMD of about 8%. The percentages climb with age, which is why RMDs become a more dominant feature of the retirement-tax conversation in the seventies and eighties.

You calculate one RMD per IRA, then aggregate the RMDs across all your IRAs and take the total from any one (or any combination) of them. For 401(k)s, RMDs are not aggregable — each plan computes and pays its own.

The penalty for missing an RMD

Before 2023, the penalty was a flat 50% of the under-withdrawn amount. SECURE 2.0 changed it:

  • 25% of the under-withdrawn amount, OR
  • 10% if the shortfall is corrected within a “correction window” (generally two years from when the RMD was due) and you file a Form 5329 with the corrected amount.

Even at 10%, this is a meaningful penalty on what is fundamentally a paperwork miss. The IRS does sometimes waive the penalty entirely for “reasonable cause” missed RMDs — file Form 5329 with a written explanation and a request for waiver — but this is discretionary, not automatic. The cleaner path is to not miss the RMD in the first place.

A surprisingly common cause of missed RMDs: a retiree consolidates accounts midyear, transfers an IRA between custodians, and the new custodian doesn’t realize the old RMD was already taken (or was supposed to be taken) — and neither does the retiree. RMDs are tied to the prior-year-end balance, regardless of where the money currently sits.

The high-leverage planning moves around RMDs

Several specific levers exist for retirees who want to manage the tax impact of RMDs proactively.

Roth conversions in the years before RMDs begin

The years between retirement and the RMD start age — often 65 to 72 or 73 — are typically the lowest-bracket years of a retiree’s life. No more wage income, no RMD pressure, possibly delayed Social Security. This is the prime window for Roth conversions: voluntarily moving dollars from a traditional IRA to a Roth IRA, paying ordinary income tax now to avoid larger forced taxation later.

The math is decisive in many cases. A dollar converted to Roth at a 22% marginal rate today, that would have been distributed at a 32% marginal rate ten years from now (because the RMD on a much-larger balance pushed you into a higher bracket), is a meaningful net win on a present-value basis — and it permanently removes those dollars from future RMD calculations because Roth IRAs have no RMDs.

We cover this more in our legal-tax-reduction-strategies piece and our Roth vs. Traditional IRA piece.

Qualified Charitable Distributions (QCDs)

If you are charitably inclined and at least 70½, you can direct up to a per-year limit (currently around $108,000 in 2026, indexed for inflation; check the IRS-published limit for your specific year) directly from your IRA to a qualified charity. The QCD:

  • Counts toward your RMD for the year
  • Is not included in your taxable income (unlike a regular RMD followed by a charitable deduction)
  • Effectively gives you a “deduction” even if you don’t itemize

For retirees in the standard-deduction era, the QCD is often the most efficient way to give. A $20,000 QCD satisfies $20,000 of RMD without ever appearing on the AGI line — which preserves the standard deduction, doesn’t push Social Security taxability, and doesn’t trigger IRMAA tier creep.

The 70½ minimum age is a quirk of the QCD rule and is a different threshold from the RMD start age. You can take QCDs starting at 70½ even though your RMDs may not begin until 73 or 75.

In-kind RMDs

You don’t have to sell securities to fund an RMD. You can transfer shares directly from the IRA to a taxable brokerage account, valued at the date-of-transfer market price. The IRS treats the transfer as if you’d sold and rebought; you pay ordinary income tax on the transfer value. The benefit: if the underlying security is one you wanted to keep holding, you avoid a round-trip transaction cost and the cost basis in the taxable account resets to the transfer-day price, which can be useful for future tax-loss harvesting.

Don’t time it on December 31

A small but real risk: many retirees take their full RMD on December 30 or 31 each year, on the theory that the deferral inside the IRA earned them a few extra months of compounding. In a rising market that’s true. In a market that drops 15% in November and December, you’d have been better off taking the RMD in October when the balance was higher (less of a percentage of the year-end balance) and the dollar amount smaller. Spreading the RMD across the year — quarterly, monthly — is usually the more defensible operational approach.

Common mistakes that cost the most

In rough order of how often they bite retirees:

  1. Missing the first RMD entirely because the retiree didn’t know it had triggered, or because Custodian A didn’t notify them after a transfer to Custodian B.
  2. Taking the deferred-first-year option without realizing it doubles up two RMDs in the following year and can blow up that year’s tax bill.
  3. Forgetting that Roth IRAs have no RMD — and unnecessarily withdrawing from a Roth (or worse, “rebalancing” by converting Roth back to traditional, which the rules don’t even allow).
  4. Aggregating 401(k) RMDs across multiple plans. You can aggregate IRAs; you cannot aggregate 401(k)s. Each plan needs its own RMD.
  5. Not coordinating with charitable giving — paying full ordinary income tax on an RMD that could have gone directly to charity as a QCD with zero AGI impact.
  6. Missing the Roth-conversion window — letting tax-deferred balances grow uncontrolled into the RMD years, then being shocked at the bracket the forced distributions push into.
  7. Treating the prior-year-end balance as something to manage. Some retirees try to reduce next year’s RMD by taking large discretionary withdrawals in December. The balance the IRS uses is December 31 — manipulation requires extreme December moves and rarely produces the intended outcome cleanly.
  8. Not planning for IRMAA — the income-related Medicare Part B and D premium surcharges. RMDs feed AGI, AGI feeds IRMAA, and a poorly-timed RMD year can push the retiree into a higher Medicare premium tier for two years (the lookback). Coordinating Roth conversions, QCDs, and RMD timing against IRMAA brackets is a meaningful planning lever for higher-asset retirees.

How TTCM coordinates with RMDs

For clients in or approaching the RMD years, several things are part of the standing plan:

  • Track all RMD-eligible accounts in one place — IRAs (aggregable), 401(k)s (not aggregable), inherited IRAs (separate). Confirm the prior-year-end balance with each custodian by mid-Q1 and compute the RMD before any major financial decisions for the year.
  • Use the years before RMDs start as the Roth-conversion window when the math supports it. We coordinate with the client’s tax preparer on the bracket-fill amount each year — converting up to the top of the current bracket, no further. We don’t push conversions when the math doesn’t work.
  • Default to QCDs for any charitable giving for clients who are 70½+ and donate annually. The standard-deduction-era math is almost always in favor of the QCD over a regular distribution + charitable deduction.
  • Spread RMDs across the year, typically with a quarterly default, rather than a December lump sum — gives you the benefit of dollar-cost-averaging out of the IRA and reduces the timing risk if markets drop late in the year.
  • Check the IRMAA brackets every year before locking in Roth-conversion and QCD amounts. The two-year IRMAA lookback means a planning mistake today shows up in higher Medicare premiums two years later, when it’s too late to fix.
  • Flag the “still working” 401(k) exception for clients past the RMD age who are still working part-time at the company sponsoring their plan — the exception meaningfully delays the start of mandatory withdrawals from that one specific account.
  • Coordinate with the sequence-of-returns risk cash reserve. The RMD is essentially a forced withdrawal; if it lands in a bad market year, the cash and short-duration reserve absorbs the impact rather than the equity portion.

None of this is exotic. It’s the difference between treating RMDs as paperwork the custodian handles and treating them as the integrating axis for the retirement-tax plan.

Closing

If you’re approaching the RMD start age (or already in it), the years immediately before and the first few years of RMDs are the highest-leverage planning window of an investing lifetime. Schedule a complimentary 30-minute review with Tim Travis if you want to walk through your specific situation — Roth conversion strategy, QCD coordination, IRMAA planning, and how the RMD interacts with everything else in your tax structure. No fee, no obligation, no pressure.

Disclaimer

This is general educational content and is not personalized investment, tax, or legal advice. RMD rules, age thresholds, penalty rates, and QCD limits are set by Congress and the IRS and have changed multiple times in recent years; specific dollar amounts referenced (such as the QCD limit) are illustrative as of publication and are inflation-indexed annually — consult the current IRS guidance and a qualified tax professional for your specific year and situation. Past performance does not guarantee future results. T&T Capital Management is an SEC-registered investment adviser. Registration with the SEC does not imply a certain level of skill or training.