If you have a traditional IRA, 401(k), 403(b), 457(b), or SEP-IRA, the IRS does not let you defer taxes on that money forever. At a certain age, currently 73 (increasing to 75 starting in 2033 under the SECURE 2.0 Act), you must begin withdrawing a minimum amount each year, and the withdrawals are taxed as ordinary income. The required amount is called your Required Minimum Distribution, or RMD. The rule applies to almost all traditional retirement accounts, with the notable exception of Roth IRAs, which have no RMDs during the owner's lifetime.
The first RMD is for the year you turn 73, but you have until April 1 of the following year to take it. Every subsequent RMD must be taken by December 31 of its year. Many retirees take the first RMD in the year they turn 73 (rather than waiting until April 1) to avoid having two RMDs in the same calendar year, which can push them into a higher tax bracket.
The amount of each RMD is calculated by dividing the prior year-end balance of your account by a number called the Distribution Period, which comes from an IRS table called the Uniform Lifetime Table. The Distribution Period at age 73 is currently 26.5, which translates to about 3.77 percent of the account balance. The percentage rises each year as you get older — at 80 it is about 5.0 percent, at 85 it is about 6.6 percent, and at 90 it is about 8.8 percent. By the time you reach your nineties, the RMD is taking out a substantial chunk of your account each year whether you need the money or not.
The arithmetic is straightforward. Take the balance of your traditional retirement account on December 31 of the prior year. Find your Distribution Period from the IRS Uniform Lifetime Table (the broker holding your IRA usually does this for you, but you can also look it up at irs.gov). Divide the balance by the distribution period. The result is your RMD for the current year.
Example: At the end of last year, your traditional IRA balance was $500,000. You turn 75 this year, so your Distribution Period is 24.6. Your RMD = $500,000 / 24.6 = $20,325. You must withdraw at least $20,325 from the account this year and pay income tax on it.
If you have multiple traditional IRAs, you can calculate the RMD for each one separately and then take the total from any one or any combination of them. This flexibility lets you concentrate withdrawals from accounts you want to draw down faster, or from accounts with poor investments, while leaving other accounts to keep growing. 401(k)s, however, must each have their RMD calculated and taken separately — you cannot aggregate 401(k) RMDs.
If you are still working at age 73 and have a 401(k) at your current employer, you may be able to defer the RMD on that specific account until you actually retire (as long as you do not own more than 5 percent of the company). This is sometimes called the 'still-working exception.' It does not apply to IRAs or to former-employer 401(k)s — only to your current employer's plan.
If you give to charity at all, the Qualified Charitable Distribution is one of the most underused tax breaks in the entire retirement playbook. Here is how it works. Once you are 70½ or older (note: this age is 70½, not 73), you can direct your IRA custodian to send up to $110,000 per year (in 2026, indexed annually) directly from your IRA to one or more qualified charities. The amount sent counts toward your RMD for the year, but it does not count as taxable income.
The benefit is significant. Instead of taking your RMD as income, paying tax on it, and then giving some of the after-tax money to charity, you skip the middle step entirely. The charity gets the full amount, and you save the income tax you would have paid on it. For someone in the 22 percent federal tax bracket, a $20,000 QCD instead of a $20,000 RMD plus a separate $20,000 charitable contribution saves $4,400 in federal taxes, plus state taxes, plus potential Medicare premium increases.
The QCD is also more useful than a regular charitable deduction for most retirees. Because of the high standard deduction, most people do not itemize anymore, which means regular charitable contributions provide no tax benefit at all. The QCD bypasses this entirely — it reduces your taxable income directly, regardless of whether you itemize.
To do a QCD, contact your IRA custodian and tell them you want to make a Qualified Charitable Distribution. The check has to go directly from the IRA to the charity (you cannot receive the money first and then donate it), and you have to make sure the charity is a 501(c)(3) public charity (donor-advised funds and private foundations do not qualify). Keep documentation for your tax return. The custodian will not separate QCDs from other distributions on the 1099-R you receive, so you have to report it correctly on your own tax return.
If you are reading this in your sixties, before RMDs have started, the most powerful tax strategy available to you is gradually converting traditional IRA money to a Roth IRA in the years between retirement and age 73. This is the Roth conversion ladder strategy covered in another article in this series. The reason it matters here is that the size of your traditional IRA at age 73 determines the size of your RMDs for the rest of your life, and reducing that balance through conversions reduces every future RMD as well.
The math compounds. A $50,000 conversion in your mid-sixties reduces your traditional IRA balance by $50,000 forever, which reduces every future RMD by roughly $1,800 to $4,400 per year (depending on your age). Over twenty years of retirement, that is $40,000 to $80,000 less in forced taxable income — and the converted money in the Roth grows tax-free for the rest of your life.
The best time to do conversions is the years between when you retire and when RMDs begin, because your taxable income is lower then than it will be once RMDs and Social Security are fully in play. If you are reading this and you are 64 with a large traditional IRA, this is the moment to be having a conversion conversation with a tax planner.
Asset location is the practice of holding different types of investments in different types of accounts based on their tax characteristics. The general principle: hold investments that produce ordinary income (bonds, REITs, high-dividend stocks) in tax-deferred accounts like traditional IRAs, where the income is sheltered from current taxation. Hold investments that produce capital gains (growth stocks, index funds) in taxable accounts, where capital gains are taxed at preferential rates. Hold the highest-growth investments in Roth accounts, where the eventual gains are tax-free.
How does this affect RMDs? Your RMD is based on the total balance of your traditional IRA. If your traditional IRA is full of fast-growing investments, the balance grows quickly and so do the RMDs. If your traditional IRA is full of slower-growing income investments, the balance grows more slowly and so do the RMDs. By moving the high-growth investments into a Roth (where they grow tax-free and have no RMDs) and keeping the income investments in the traditional IRA, you slow the growth of the RMD-generating account.
This is not a one-time decision but an ongoing optimization. Every year, look at where your investments are held and consider whether shifting them between accounts would reduce your long-term tax bill. For most retirees, this is a conversation worth having with a fee-only financial advisor, because the tax implications of moving investments between accounts can be significant.
Most retirees take their RMD as cash — the broker sells some investments and sends the cash to a regular bank account. But you do not actually have to sell anything to take an RMD. You can transfer investments directly out of the traditional IRA into a regular taxable brokerage account, in their existing form. This is called taking the RMD 'in kind.'
The advantage is that you are not forced to sell at an inconvenient time. If the market is down and you do not want to lock in losses, an in-kind transfer lets you take the RMD without selling anything — the investments simply move from one account to another, keeping their current price as their new cost basis in the taxable account. The IRS still treats this as a distribution and taxes you on the value at the time of transfer, but you have not been forced to sell.
Once the investments are in the taxable account, they continue to grow, but any future gains are taxed as capital gains (often at lower rates) rather than as ordinary income. If you eventually sell at a higher price, the gain is taxed at capital gains rates. If the value drops, you can use the loss to offset other gains.
This strategy is particularly useful in down markets and for investments you would not want to sell anyway. Talk to your IRA custodian about the in-kind transfer process — most major brokers handle it routinely, but the paperwork is slightly different from a normal cash distribution.
The final strategy is to think of your RMD as one piece of a larger annual tax picture and to actively manage your other income to keep your overall tax bill as low as possible. This is sometimes called tax bracket management or tax smoothing.
The basic idea: your tax bracket can vary significantly from year to year based on factors you control (when you take Social Security, when you take additional IRA withdrawals, when you sell investments in taxable accounts, when you do Roth conversions). By coordinating these decisions across multiple years, you can keep your taxable income from spiking in any one year and avoid pushing yourself into the next bracket up.
For example: in a year when your RMD will be relatively low, you might do an additional Roth conversion to fill up the rest of your current tax bracket. In a year when your RMD will be high, you might delay any optional withdrawals or postpone selling appreciated investments until the next year. Over a decade of retirement, this kind of coordination can produce meaningful tax savings — often tens of thousands of dollars compared to a passive approach.
The other thing to manage is the secondary effects: your RMD affects how much of your Social Security gets taxed, your Medicare Part B and D premiums (through the IRMAA surcharge), and your eligibility for some tax credits. A high-RMD year can cascade into higher Medicare premiums for two years afterward, because Medicare uses your tax return from two years ago to set your premiums. Knowing this lets you plan around it — if you can keep one year's income just below an IRMAA threshold, you save the surcharge on both Part B and Part D for two years.
The single most important thing to know about RMDs is that the penalty for missing one is severe. Under current law, if you fail to take the full required amount by the deadline, the IRS imposes a 25 percent penalty on the shortfall — though it can be reduced to 10 percent if you correct the error promptly. Either way, this is a much larger penalty than you should ever pay through inattention.
Set a calendar reminder for early November of every year reminding you to verify that you have taken your full RMD. Most IRA custodians will automate the RMD if you ask them to, calculating and distributing it on a schedule you choose. Take advantage of this if you are not confident about handling it manually. Automation is the easiest defense against a missed RMD.
If you do miss an RMD, file Form 5329 with your tax return for the year of the missed distribution and request a waiver of the penalty (the IRS often grants waivers for reasonable cause if you correct the error and file properly). Do not just hope the IRS will not notice. They will, and the longer the error goes uncorrected the worse the outcome.
RMDs are one of the few areas of retirement planning where the rules are inflexible and the penalties are real. Pay attention to them, build a system that handles them automatically, and use the strategies above to minimize the tax impact. Done right, RMDs are a manageable part of a retirement plan. Ignored or mishandled, they can quietly cost you more than any other single tax mistake of your retirement years.
