Saving & Spending Taxes

9 Must-Know Facts About RMDs

These facts can help you make the most of your RMDs.

Jar filled with coins labeled retirement
Updated Dec. 17, 2024
Fact checked

There’s no shortage of acronyms in the world of personal finance. Between your HYAs, your NAVs, and your REITs, it can be hard to keep up with everything. 

But one of the most important acronyms, especially as you approach retirement, is RMD, or required minimum distribution.

An RMD is the amount of money that you must withdraw from your tax-free retirement account once you reach age 72. Knowing how these work is an important part of planning and saving for retirement.

Steal this billionaire wealth-building technique

The ultra-rich have also been investing in art from big names like Picasso and Bansky for centuries. And it's for a good reason: Contemporary art prices have outpaced the S&P 500 by 136% over the last 27 years.

A new company called Masterworks is now allowing everyday investors to get in on this type of previously-exclusive investment. You can buy a small slice of $1-$30 million paintings from iconic artists, all without needing any art expertise.

If you have at least $10k to invest and are ready to explore diversifying beyond stocks and bonds,see what Masterworks has on offer. (Hurry, they often sell out!)

They’re required by most retirement accounts

wavebreak3/Adobe Couple using calculator

If you have a tax-deferred retirement account, then you will likely have to take RMDs starting at age 73. 

Retirement accounts that have this requirement include most 401(k) and 403(b) plans as well as traditional, SEP, and SIMPLE IRAs. You don’t have to take RMDs from Roth IRA accounts.

Want to learn how to build wealth like the 1%? Sign up for Worthy to get ideas and advice delivered to your inbox.

Different accounts have different RMDs

NDABCREATIVITY/Adobe family growing tomatoes

If you have multiple IRAs (other than Roth IRAs), you will need to calculate multiple RMDs (one for each account). However, you have the option of paying for the total contribution amount for all your IRAs out of one IRA account as long as the total amount is satisfied.

For example, if you’re required to take $1,000 out of one IRA and $2,000 out of a different IRA, you could choose to just take $3,000 out of one to satisfy your RMD requirement.

For 403(b) accounts, the rules are the same as IRAs, but with 401(k) accounts, it’s a bit different. If you have multiple 401(k) accounts, each one will come with its own RMD amount, and you must make a withdrawal from each account.

Consolidating accounts might be in your favor

fizkes/Adobe family laughing on couch

Does this all make your head hurt? In some cases, you might find it easier to consolidate your retirement accounts so that you can more easily calculate your RMDs. 

If possible, try to do this well before the age of 72, so you’re not scrambling at the last minute or, worse, hit with late penalties for not taking your RMDs on time.

They’re (usually) taken out starting at age 73

Gorodenkoff/Adobe Dinner party with friends and family

In most cases, RMDs now kick in at age 73, and you must take your first RMD by April 1 of the year after you turn 73. Keep in mind that if you wait until the year after you turn 73 to take your first RMD, you will have to take two distributions that year.

For example, if you turned 73 in July 2024, you can wait until April 1, 2025, to take your RMD for 2024. You’ll also have to take an RMD for 2025 by Dec. 31, 2025.

However, if you’re still working for a company, the IRS doesn’t require you to take an RMD from that company’s retirement plan, provided that you don’t own more than 5% stock in your company.

This applies only to the RMDs you have with that company, so you may need to start taking RMDs from other accounts after age 73.

They’re based on your life expectancy

Halfpoint/Adobe Grandmother and granddaughe

Each of your RMDs will be calculated based on your account balance and your life expectancy. If you have multiple RMDs, you’ll have to calculate each one separately using an IRS life expectancy table. 

The tables vary depending on whether you have a spouse who’s the only beneficiary and the age of your spouse.

There’s a penalty if you’re late

simona/Adobe Retired couple drinking coffee

The penalty for missing an RMD is steep. If an RMD isn't taken on time or less than the required amount is taken, the IRS will charge you 25% of the amount that wasn't taken on time. However, if you correct the missed RMD within two years, the penalty is reduced to 10%.

That means that if you were supposed to take a $1,000 RMD and don't correct it within two years, you'll owe the IRS $1,000 and a $250 penalty. If you correct the missed RMD within two years, the penalty would be $100.

A Roth rollover might be helpful

Rawpixel.com/Adobe Happy retired friends eating together

If you move your retirement savings like traditional IRAs and 401(k)s into a Roth IRA (also known as a rollover), you won’t be required to take RMDs anymore. Instead, you can leave your money in your Roth account for as long as you’d like, and can even choose to never withdraw it and leave it as an inheritance.

You also won’t have to pay any taxes on withdrawals from your Roth account as long as you are older than 59 1/2 and have had the account for at least five years.

Proceed with caution, though — when you roll over accounts to a Roth IRA, you pay taxes on the amount you move when you move it. That could lead to a hefty tax bill. On the plus side, you wouldn’t have to worry about RMDs.

QLACS can also help

Mirko Vitali/Adobe Retired friends enjoying travel

A QLAC, or qualified longevity annuity contract, is designed to combat the issue of you outliving your retirement savings. You use funds from a retirement account to buy a QLAC, which provides you with a guaranteed stream of income for the rest of your life.

You can wait until age 85 to start taking income from the annuity. That’s also the age you’re required to start taking RMDs from your annuity.

You can donate RMDs

makistock/Adobe Couple calculating retirement savings

Feeling charitable? Good news — it’s actually possible to donate your RMDs as a qualified charitable distribution (QCD), and doing so is a great way to make a positive impact on some of the causes that are important to you. You can donate up to $105,000 as a QCD.

If you’re over 50, take advantage of massive discounts and financial resources

Over 50? Join AARP today — because if you’re not a member you could be missing out on huge perks. When you start your membership today, you can get discounts on things like travel, meal deliveries, eyeglasses, prescriptions that aren’t covered by insurance and more.

How to become a member today:

  • Go here, select your free gift, and click “Join Today” 
  • Create your account (important!) by answering a few simple questions 
  • Start enjoying your discounts and perks!

You’ll also get insider info on social security, job listings, caregiving, and retirement planning. And you’ll get access to AARP’s Fraud Watch Network to help you protect your money, as well as tools to help you plan for retirement.

Important: Start your membership by creating an account here and filling in all of the information (Do not skip this step!) Doing so will allow you to take up 25% off your AARP membership, making it just $12 per year with auto-renewal.

Become an AARP member now

Bottom line

LIGHTFIELD STUDIOS/Adobe Retired friends smiling

Retiring requires a lot of planning and record-keeping, but there are some things that you can do to ensure a stress-free retirement.

Even if you’re not yet of retirement age, it’s worth your while to find an accountant who can help you avoid taxes on RMDs. 

By knowing what to expect with RMDs, you’re saving yourself an unpleasant surprise. Do the research now — your future self will thank you.

Lucrative, Flat-Rate Cash Rewards

5.0
info

Wells Fargo Active Cash® Card

Current Offer

$200 cash rewards bonus after spending $500 in purchases in the first 3 months

Annual Fee

$0

Rewards Rate

Earn unlimited 2% cash rewards on purchases

Benefits and Drawbacks
Card Details