Understanding Required Minimum Distributions (RMDs)
A Required Minimum Distribution (RMD) is the mandatory minimum amount that owners of tax-deferred retirement accounts—such as Traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer 401(k), 403(b), and 457(b) plans—must withdraw annually once reaching statutory age thresholds.
Under the SECURE 2.0 Act, the mandatory starting age for RMDs increased:
- Age 73: Applies to individuals reaching age 72 after December 31, 2022 (born between 1951 and 1959).
- Age 75: Scheduled to apply to individuals reaching age 74 after December 31, 2032 (born in 1960 or later).
- Roth IRAs: Exempt from RMDs during the original account holder's lifetime!
How Your RMD is Calculated
The IRS calculates your RMD by dividing your total prior year-end account balance (as of December 31) by a statutory life expectancy factor from the IRS Uniform Lifetime Table III:
If your sole designated beneficiary is your spouse and they are more than 10 years younger than you, you are legally permitted to use the more favorable IRS Joint Life and Last Survivor Table II, which provides larger divisors and reduces required withdrawals.
Frequently Asked Questions (FAQ)
What is the penalty for failing to take an RMD?
Under SECURE 2.0, failing to withdraw the required RMD by December 31 triggers an IRS excise tax of 25% of the unwithdrawn amount (reduced to 10% if corrected in a timely manner via Form 5329). This is a reduction from the prior punitive 50% penalty.
Can I donate my RMD to charity to avoid taxes?
Yes. Through a Qualified Charitable Distribution (QCD), individuals aged 70½ or older can transfer up to $105,000 annually directly from a Traditional IRA to a qualifying 501(c)(3) charity. The transfer satisfies the RMD mandate while completely excluding the distribution from taxable income.