Required Minimum Distribution

A Required Minimum Distribution (RMD) is the minimum amount of money the IRS requires you to withdraw from certain retirement accounts each year once you reach a specific age. The goal of this rule is to ensure that money saved in tax-deferred accounts like traditional IRAs and 401(k)s is eventually taxed, rather than sitting untouched forever.

Starting in 2026, most account holders must begin taking RMDs at age 73. This age threshold was updated by recent legislation, so it is worth confirming your specific start date based on your birth year. Roth IRAs are a notable exception: they do not require withdrawals during the original owner’s lifetime, which makes them a popular tool for passing wealth to heirs.

The amount of your RMD is calculated each year using two factors:

• The total balance of your retirement account as of December 31 of the previous year
• A life expectancy factor published in IRS tables, based on your age

Dividing your account balance by your life expectancy factor gives you the minimum dollar amount you must withdraw that year. For example, if your traditional IRA had a balance of $500,000 at the end of last year and your IRS life expectancy factor is 26.5, your RMD for the current year would be approximately $18,868.

Missing an RMD or withdrawing less than the required amount carries a significant penalty. The IRS can charge an excise tax of 25% on the amount you failed to withdraw, though this can be reduced to 10% if the mistake is corrected in a timely manner.

A few additional points worth knowing about RMDs:

• RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored plans like 401(k) and 403(b) accounts
• If you have multiple IRAs, you calculate each account’s RMD separately but can take the total from one or more of those accounts
• RMD withdrawals count as ordinary taxable income in the year you receive them
• Qualified Charitable Distributions (QCDs) allow you to send up to $108,000 directly to a charity in 2026, which counts toward your RMD but is excluded from taxable income

RetireGrader is not a financial advisor or fiduciary. Speaking with a tax professional can help you plan your withdrawals in the most efficient way for your situation.