What Is an RMD and What Happens If You Miss One?

If you have money in a traditional IRA, 401(k), 403(b), or most other tax-deferred retirement accounts, there will come a point when the federal government requires you to begin withdrawing from them — whether you need the money or not. These mandatory withdrawals are called Required Minimum Distributions, or RMDs.

Understanding RMDs — when they start, how they're calculated, and what happens if you miss one — is essential knowledge for anyone in or approaching retirement.

What Is an RMD?

When you contribute to a traditional IRA or 401(k), you generally receive a tax deduction upfront and your money grows tax-deferred. The IRS has been patient — but not infinitely so. RMDs are the mechanism through which the government eventually collects the taxes it deferred. By requiring withdrawals, they ensure that tax-deferred money is eventually taxed as ordinary income.

When Do RMDs Begin?

The SECURE 2.0 Act — signed into law in December 2022 — made significant changes to RMD starting ages:

Your first RMD must be taken by April 1 of the year following the year you reach your RMD age. All subsequent RMDs must be taken by December 31 of each year. Taking your first RMD as late as April 1 means you'll take two RMDs in that calendar year — which could push you into a higher tax bracket.

How Is the RMD Amount Calculated?

Your RMD is calculated by dividing your account balance — as of December 31 of the prior year — by a life expectancy factor from the IRS Uniform Lifetime Table. The factor decreases each year as you age, which means the percentage of your account you must withdraw increases over time.

If you have multiple traditional IRAs, you can calculate the RMD for each account separately and then take the total from any one or combination of accounts. 401(k) accounts, however, require separate RMDs from each account.

What Happens If You Miss an RMD?

Missing an RMD — or taking less than the required amount — triggers one of the most significant penalties in the tax code. Prior to the SECURE 2.0 Act, the penalty was 50% of the amount not withdrawn. SECURE 2.0 reduced this to 25%, and further to 10% if corrected promptly.

RMDs and Tax Planning

RMDs can create meaningful tax complexity, particularly for retirees with large IRA balances. Several planning considerations are worth discussing with a tax professional:

• RMDs can push you into a higher bracket. A large RMD added to Social Security income and other sources can trigger higher marginal rates, increased Medicare premiums (IRMAA), and additional taxation of Social Security benefits.
• Roth conversions before RMD age. Converting traditional IRA assets to Roth during the years between retirement and your RMD start date can reduce future RMD requirements and the associated tax burden.
• Qualified Charitable Distributions (QCDs). If you are charitably inclined, you can donate up to $105,000 per year directly from your IRA to charity as a QCD. This satisfies your RMD requirement without the distribution being included in taxable income — a powerful tax strategy for those who give.

The Bottom Line

RMDs are an unavoidable feature of traditional tax-deferred retirement accounts. Understanding when they start, how they're calculated, and how to plan around them can save you thousands of dollars in unnecessary taxes and penalties.

The most important action items: know your RMD start age, understand how the calculation works, never miss a distribution, and consider the tax planning opportunities available in the years before your RMDs begin.