Required Minimum Distributions (RMDs)

Written By Julian Cruz

What Are RMDs?

Required Minimum Distributions (RMDs) are the minimum amounts you must withdraw each year from certain retirement accounts once you reach a specific age. The rules are set by the Internal Revenue Service (IRS) to ensure retirement funds are eventually taxed.

Accounts That Require RMDs

  • Traditional IRAs

  • SEP & SIMPLE IRAs

  • 401(k) plans

  • 403(b) plans

  • Most other employer-sponsored retirement plans

Not subject to RMDs (for original owner):

  • Roth IRAs

When Do RMDs Start?

  • If you were born 1951–1959 → RMDs begin at age 73

  • If born 1960 or later → RMDs begin at age 75

Your first RMD must be taken by April 1 of the year after you reach your required age.
All future RMDs must be taken by December 31 each year.

⚠️ Delaying your first RMD until April 1 means you will take two RMDs in the same tax year, which may increase taxes.

How RMDs Are Calculated

The formula is simple:

Prior Year-End Account Balance ÷ IRS Life Expectancy Factor = RMD

The IRS provides a Uniform Lifetime Table used by most account holders.

Example Calculation

If your IRA balance on December 31 was $500,000 and you are age 73:

$500,000 ÷ 26.5 = $18,867 RMD

That amount must be withdrawn and reported as taxable income.

RMD Planning Considerations

1. Tax Impact

RMDs are taxed as ordinary income and can:

  • Increase Medicare premiums (IRMAA)

  • Increase taxation of Social Security

  • Push you into higher tax brackets

2. Still Working Exception

If you’re still employed at 73+ and do not own more than 5% of the company, you may delay RMDs from your current employer’s plan (not IRAs).

3. Missed RMD Penalty

Failure to take your RMD results in:

  • 25% penalty (can be reduced to 10% if corrected quickly)

4. Qualified Charitable Distributions (QCDs)

If 70½ or older, you can send up to $100,000 per year directly to charity from an IRA to satisfy RMD — potentially reducing taxable income.

Strategic RMD Planning

You may consider:

  • Roth conversions before RMD age

  • Partial withdrawals in lower-income years

  • Strategic IRA rollovers

  • Asset repositioning for income stability

  • Coordinating RMDs with Social Security timing

  • Charitable strategies

Avoid RMD Surprises

RMDs can significantly impact your retirement income and tax exposure. Proper planning can help reduce taxes, manage Medicare premiums, and preserve wealth.

Schedule a complimentary RMD review to determine:

  • Your projected lifetime RMD totals

  • Estimated tax exposure

  • Strategic repositioning opportunities

  • Charitable planning options

Julian Cruz