Required Minimum Distributions (RMDs): What They Are and Why They Matter

RMDs are one of the most misunderstood aspects of retirement planning. Miss one, and the penalty can be significant. Ignore the planning opportunities around them, and you may end up paying more in taxes than you need to. Let me walk you through what they are, how they work, and what you can do to plan around them.

What Is a Required Minimum Distribution?

A Required Minimum Distribution (RMD) is the minimum amount the IRS requires you to withdraw from certain tax-deferred retirement accounts each year once you reach a certain age. The government allowed you to defer taxes on that money for decades, RMDs are how they ensure those taxes eventually get paid. (IRS, 2026)

RMDs are taxed as ordinary income in the year you take them, just like a paycheck. They cannot be rolled back into a retirement account, and with limited exceptions, they cannot be avoided once they begin.

When Do RMDs Start?

Under the SECURE 2.0 Act, the age at which RMDs must begin depends on your birth year. If you were born between 1951 and 1959, your RMD starting age is 73. If you were born in 1960 or later, your RMD starting age is 75. (T. RowePrice, 2025)

There is one important exception for workplace plans: if you’re still working at the company that sponsors your 401(k) and you don’t own more than 5% of the business, you may be able to delay RMDs from that specific plan until you retire. This does not apply to IRAs or old 401(k) plans from previous employers. (IRS, 2026)

First-Year RMD Deadline

In your first RMD year, you have the option to delay your distribution until April 1st of the following year. That sounds like a nice break, but there’s a catch. If you delay, you’ll be required to take two RMDs in that second year: the one you have delayed and the one for the current year. Taking two RMDs in one year means more taxable income, which could push you into a higher bracket. In most cases, it makes sense to take your first RMD in the year you reach your applicable starting age rather than deferring it. (Fidelity, 2026)

Which Accounts Are Subject to RMDs?

Not all accounts are treated the same. Here’s a quick reference:

*Age 73 if born 1951–1959; Age 75 if born 1960 or later

The key takeaway: Roth IRAs are not subject to RMDs during the original owner’s lifetime, which is one of the reasons why they might be so valuable as a long-term planning tool.

How Is the RMD Amount Calculated?

Your RMD is calculated by dividing your account balance as of December 31st of the prior year by a life expectancy factor from the IRS Uniform Lifetime Table. The IRS updates these tables periodically, and your financial institution will typically calculate your RMD for you. That said, it’s worth understanding how the math works. (IRS, 2026)

Example: Your Traditional IRA balance was $500,000 on December 31st of last year. At age 73, the IRS life expectancy factor is 26.5. Your RMD for this year would be $500,000 ÷ 26.5 = approximately $18,868. That amount must be withdrawn and will be included in your taxable income for the year.

The divisor gets smaller each year as you age, which means your RMD amount generally increases over time, even if your account balance stays flat.

What Happens If You Miss an RMD?

Missing an RMD used to carry a stiff 50% excise tax on the amount not taken. Under SECURE 2.0, that penalty was reduced to 25%, and further reduced to 10% if you correct the mistake in a timely manner. Even at 10%, it’s a penalty worth avoiding. The IRS also has a process for requesting a waiver in cases of reasonable error. (IRS, 2026)

The bottom line: know your RMD deadline (December 31st each year, except for your first RMD) and make sure it gets taken.

How RMDs Connect to the Rest of Your Plan

In the previous blog posts (which can be found here) “Please link the landing page to all blogs on our website” you’ve heard about the value of Roth accounts — Roth IRAs, Roth 401(k)s, Backdoor Roths, and Mega Backdoor Roths. One of the core reasons they’re so powerful is this: Roth IRAs have no RMDs during your lifetime. That means the money continues to grow tax-free for as long as you let it, and you have full control over when and how you access it in retirement.

Building a mix of pre-tax and Roth savings throughout your working years gives you flexibility in retirement to manage your taxable income, drawing from Roth accounts in years when additional income would push you into a higher bracket, and from pre-tax accounts when it makes sense. That kind of tax diversification is one of the most underappreciated aspects of long-term retirement planning.

Key Considerations

• RMDs increase your taxable income: Which can affect your tax bracket, Medicare premiums (IRMAA), taxation of Social Security benefits, and eligibility for certain deductions or credits.
• Inherited IRAs have their own RMD rules: The SECURE Act significantly changed how beneficiaries must handle inherited retirement accounts. If you’ve inherited an IRA, the rules that apply to you may be very different from those that apply to the original owner.
• RMDs cannot be reinvested into a retirement account: Once taken, they cannot go back into an IRA or 401(k). However, after-tax RMD proceeds can be invested in a taxable investment account.
• Still working at your RMD age? You may be able to delay 401(k) RMDs from your current employer’s plan, but not from IRAs or old employer plans.

The Bottom Line

RMDs are one of those topics that can feel distant when you’re in the accumulation phase of your financial life, but they have a real impact on your retirement income, your tax bill, and your legacy. Understanding how they work and planning around them well before they start can make a meaningful difference.

The starting age for RMDs depends on when you were born, so it’s worth knowing exactly when they apply to you. And given the connection to Roth accounts, Social Security, Medicare premiums, and overall retirement income, this is one area where getting ahead of it early pays off.

Have questions about how RMDs fit into your retirement plan? Let’s talk!

Disclaimer: This blog post is for educational purposes only and should not be construed as personalized financial or tax advice. RMD rules are complex and depend on individual circumstances, account types, beneficiary designations, and current tax law, which is subject to change. The SECURE 2.0 Act introduced significant changes to RMD rules, including changes to starting ages based on birth year, and additional guidance from the IRS may affect how certain provisions are applied. If you have inherited a retirement account, separate rules apply and you should consult with a qualified financial professional and/or tax advisor. Please consult with a qualified financial professional and/or tax advisor before making any decisions regarding Required Minimum Distributions or retirement income planning.

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Jacob Campbell, CFP®

Jacob Campbell is a Paraplanner with Educo Advisor Group, where he assists with the financial planning process, day-to-day operations, and client services.

He graduated Summa Cum Laude in 2023 from California University of Pennsylvania with degrees in Accounting and Finance and a minor in Personal Financial Planning. During college, Jacob was a student-athlete on the soccer team, served as a student instructor for the finance department, and competed in the Financial Planning Association’s annual Financial Planning Challenge.

Jacob resides in Uniontown. Outside of work, he enjoys fishing, golfing, and coaching high school soccer.

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