Updated March 8th, 2025

Today, we are diving into RMD and what you need to know about it.

Required Minimum Distributions (RMDs) are mandatory withdrawals from certain retirement accounts. They apply once you reach a specific age, which is 73 as of 2024. If you inherit a retirement account, you must also take RMD. The frequency depends on your relationship with the deceased.

RMDs exist because traditional retirement accounts are tax-deferred. To clarify, contributions are tax-deductible, and the money grows tax-free. However, the government has not yet taxed these funds. RMD rules ensure retirees start withdrawing and paying taxes on their savings, preventing money from remaining untaxed indefinitely.

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What is the taxation of my RMD?

If you have a tax-deferred retirement account like an IRA, SEP, or 401(k), you will eventually owe taxes. The government allows tax-free growth, but withdrawals are taxable.

Some retirees may pay little to no tax due to low income and deductions. Others, with fewer deductions and additional income sources, may face higher tax rates. For example, those who have paid off their mortgage or no longer claim dependents might fall into the 25-30% federal tax bracket.

State Taxes

Some retirees must also pay state taxes, but this article focuses on federal rules since states vary in their approach.

Contributing to a retirement account with tax deductions means delaying taxes. You are trading lower taxes now for potential taxes later. The goal is to be in a lower tax bracket in retirement than during your working years.

Some retirees achieve this, while others do not. At 25 or 30, it’s impossible to predict your future income, Social Security, pension, or savings. However, Roth IRAs are different. Since they are funded with after-tax dollars, they are not subject to RMD rules.

How is RMD Calculated in 2025? 

In 2025, Required Minimum Distributions (RMDs) are calculated using the IRS Uniform Lifetime Table. This table helps determine the minimum withdrawals from traditional IRAs and 401(k) plans.

Your RMD is based on your account balance and life expectancy. To calculate it, add up all your qualified retirement account balances as of December 31, 2024. Then, divide that total by your life expectancy factor from the table..

For example, if you are 75 in 2024 and have $500,000 in retirement accounts, your RMD is $500,000 ÷ 24.6 = $20,325.
(Note: The divisor 24.6 is based on the IRS Uniform Lifetime Table for age 75 in 2024.)

Always check with a qualified tax advisor before taking your RMD.

To avoid penalties, this amount must be withdrawn by December 31. If you need help, consult a financial advisor or tax professional.

What are the Required Minimum Distribution (RMD) Rules?

Understanding Required Minimum Distributions (RMDs) means keeping up with changing rules. The starting age was once 70½, then 72; in 2023, it increased to 73. Regardless if you need the money, you must withdraw a minimum amount from tax-deferred retirement accounts and pay taxes.

RMDs are calculated using the IRS Uniform Lifetime Table, based on your account balance as of December 31 of the previous year. The first withdrawal is about 4% of your total balance and increases each year. In 2033, the starting age will shift to 75.

You have until April 1 of the following year to take your first RMD. However, delaying means taking two RMDs in one year.

For example, if your retirement account is worth $1,000,000, your first RMD would be $36,496. If you delay until April 1 of the following year, you must also take the second RMD, potentially totaling $80,000. This could push you into a higher tax bracket and also increase Medicare premiums.

Planning ahead can help you manage withdrawals, avoid tax surprises, and minimize financial impact—especially if you are single.

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Should I wait to take my Required Minimum Distribution?

Why delay your RMD? You might still be working and earning taxable income. Or you may have another temporary income source that will decrease later.

There are valid reasons to wait, but tax planning is key. Delaying could push you into a higher tax bracket if you take multiple RMDs in one year. As of 2023, skipping an RMD comes with a 25% penalty on the amount you should have withdrawn. It’s important to have a solid reason for not taking it.

If you have multiple IRAs or 401(k)s, you have options. You can withdraw the required amount from each account separately based on its balance as of December 31. Alternatively, you can total all RMDs and withdraw that amount from just one account. This flexibility lets you manage withdrawals strategically while meeting the requirement.

Insight on Inherited IRAs and RMDs

If you inherit an IRA and are not the spouse, you have a limited time to withdraw the funds.

Spouses can transfer the IRA into their name and follow normal RMD rules. However, non-spouse heirs who inherit after 2020 must withdraw all funds within 10 years.

You can withdraw a little each year, take occasional withdrawals, or wait and withdraw everything in the 10th year. But every dollar must be withdrawn by then, or penalties apply. While spouses can spread withdrawals over their lifetime, non-spouses have a much shorter timeline. The reason? The government wants its tax revenue sooner, and since you didn’t save this money for your own retirement, the rules are stricter.

Factors to Consider

The decision to withdraw annually or wait until the 10th year depends on your situation.

If you’re working now but plan to retire in three years, you might delay withdrawals until then. This way, you can take out the funds at a lower tax rate before the 10-year deadline. Younger heirs may benefit from smaller annual withdrawals to spread the tax burden over time.

Requirement Minimum Distribution Loopholes

There’s an exception for full-time employees with less than 5% ownership in the company. You can avoid RMDs from your 401(k) while employed. However, once you retire, RMDs must begin if you’re 73 or older.

Roth IRAs and Roth 401(k)s have no RMD requirements. However, non-spouse heirs must still follow the 10-year rule. Since Roth accounts grow tax-free, there’s little incentive to withdraw funds early. It’s often best to leave the money in the account to grow until the final year.

Conclusion – “What is RMD (Required Minimum Distribution)?”

Before taking your RMD, several factors must be considered, including your current financial needs, your spouse or ex-spouse’s benefits, and the length of your marriage.

The first step is to create a financial plan. Additionally, develop a spending plan that includes a cash flow analysis. This will provide a clear overview of your situation and options, helping increase your chances of a financially stable retirement.

If you do not have a plan or need additional support, start here: