How to Take Required Minimum Distributions (RMDs): A Practical Guide

Required Minimum Distributions—or RMDs—are mandatory annual withdrawals from certain retirement accounts once you reach a specific age. Understanding how to take them strategically can help you manage taxes, preserve your accounts, and stay compliant with IRS rules. 📋

What Are RMDs and When Do They Start?

An RMD is the minimum amount the IRS requires you to withdraw each year from traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and similar tax-deferred retirement accounts. The rules exist because the government wants to collect income taxes on money that's been growing tax-free inside these accounts.

The age at which RMDs begin depends on your birth year and account type. Generally, RMDs are required starting at an age determined by current IRS rules—though these thresholds have shifted in recent years due to legislative changes. Check the IRS website or speak with a tax professional to confirm the exact age that applies to your situation, as it varies based on when you were born and the type of account.

One key exception: if you're still working and participating in your employer's 401(k), you may be able to delay RMDs from that account until you retire, depending on the plan rules.

How RMDs Are Calculated 🧮

The formula is straightforward:

Your RMD = Account balance as of December 31 of the prior year ÷ Life expectancy factor (from IRS tables)

The IRS provides life expectancy tables based on your age. These tables are updated periodically. Your financial institution or tax advisor can help you locate the correct table and factor for your age.

Important variables that affect the amount:

  • Your age on December 31 of the distribution year
  • The total balance of your retirement accounts (for IRAs, this includes all traditional IRAs combined)
  • Whether you have a spouse who is significantly younger (which can lower your RMD if you're the account owner)

Different Ways to Take Your RMD

One account or multiple accounts?

If you own multiple traditional IRAs, the RMD is calculated separately for each but can be withdrawn from one or more of them in any combination—as long as the total equals your RMD. This flexibility can be useful for tax or account management reasons.

If you have multiple 401(k)s or 403(b)s, you must calculate and withdraw the RMD from each separately. You cannot combine them into a single withdrawal.

Timing and frequency

You can take your RMD:

  • In a single lump sum early in the year
  • Spread across multiple withdrawals throughout the year
  • As monthly, quarterly, or semi-annual payments

There's no tax advantage to one timing approach over another—you'll owe the same income tax either way. Choose a frequency that fits your cash flow needs.

Direct deposit or check

Most custodians allow you to have RMDs deposited directly to your bank account or sent by check. Some accounts allow automatic recurring RMDs, which can help you avoid accidentally missing the deadline.

Tax Considerations

RMDs are treated as ordinary income and are subject to federal income tax at your marginal tax rate. They may also be subject to state income tax, depending on where you live.

This matters for your overall tax picture:

  • RMDs increase your taxable income for the year, which can affect tax brackets, deductions, and eligibility for certain tax credits
  • If you have other income sources, the combined total affects how much you owe in taxes
  • RMDs can push you into a higher tax bracket or trigger additional Medicare premiums, depending on your income level

Working with a tax professional before you begin taking RMDs can help you understand the impact on your specific tax situation.

Missing a Deadline or Taking Too Little

The RMD deadline is December 31 of the calendar year in which the distribution is due. (For the very first RMD, there's often an extended deadline into the following April.)

The penalty for not taking your full RMD is substantial: the IRS charges a penalty equal to a percentage of the amount not withdrawn. Recent changes have reduced this penalty in some cases, but it remains a meaningful cost. If you miss a deadline, you can request a waiver if you had a valid reason and correct the error promptly, though this isn't guaranteed.

If you withdraw more than your RMD in any year, the excess counts toward the next year's requirement—so you can't accelerate withdrawals to reduce future RMDs.

Special Circumstances

Qualified charitable distributions (QCDs): If you're charitably inclined, you may be able to direct some or all of your RMD directly to a qualified charity, which can satisfy your RMD without increasing your taxable income (subject to specific rules and limits).

Inherited accounts: If you inherited a retirement account, different RMD rules may apply depending on your relationship to the deceased, the type of account, and when the death occurred. These rules are complex and warrant professional guidance.

Roth accounts: Traditional Roth IRAs have no RMDs during the original account owner's lifetime, though Roth 401(k)s do. Roth conversions are a separate strategy worth discussing with a tax advisor.

What You Need to Evaluate for Your Situation

The "best" way to take your RMD depends on:

  • Your total retirement income and other sources of cash flow
  • Your overall tax bracket and how RMDs affect it
  • Whether you need the money or can let it continue growing (if applicable)
  • Your charitable giving goals
  • Your account structure and custodian options
  • State tax considerations
  • Whether you've experienced any major life changes that might affect future years

These factors are unique to your situation and worth reviewing with a tax professional or financial advisor who knows your complete picture—not just your RMD in isolation.