At age 73, the IRS stops letting your 401(k) grow quietly. Required Minimum Distributions force you to pull money out of your account every year whether you need it or not, and every dollar comes with an income tax bill. Miss the deadline, and you’ll pay a 25% penalty on the amount you should have withdrawn. The calculation itself is straightforward: divide last year’s balance by a life expectancy factor. But the strategic decisions around RMDs, when to start, how to minimize their tax impact, and what SECURE 2.0 changed, are where most retirees either save or waste significant money.
How RMDs Work: The Basic Mechanics
An RMD is a minimum annual withdrawal the IRS requires from tax-deferred retirement accounts. The concept exists because the government deferred taxes on your contributions and earnings for decades and eventually wants its share.
The calculation: your balance divided by a life expectancy factor
Each year’s RMD is calculated by taking your account balance as of December 31 of the prior year and dividing it by the applicable life expectancy factor from IRS Publication 590-B (Uniform Lifetime Table for most people). At age 73, the divisor is approximately 26.5, producing an RMD of about 3.8% of your balance. At 80, the divisor drops to roughly 20.2, meaning you must withdraw about 5%. At 90, it’s roughly 12.2, or about 8.2%. The percentage increases every year as you age, which means RMDs grow even if your balance doesn’t, creating an accelerating tax obligation over time.
Which accounts are subject to RMDs
Traditional 401(k)s, traditional IRAs, 403(b)s, 457(b)s, SEP IRAs, and SIMPLE IRAs all require RMDs. Roth 401(k) accounts are now exempt from RMDs during the owner’s lifetime thanks to SECURE 2.0, effective starting in 2024. This was a major change: previously, Roth 401(k)s required RMDs even though Roth IRAs never did, which forced many people to roll Roth 401(k) funds into Roth IRAs at retirement just to avoid mandatory distributions. That workaround is no longer necessary. Roth IRAs have never been subject to RMDs for the original owner.
The deadline that creates a double-RMD trap in year one
Your first RMD must be taken by April 1 of the year following the year you turn 73. Every subsequent RMD is due by December 31. Here’s the trap: if you delay your first RMD to the April 1 deadline, you must also take your second RMD by December 31 of that same year. That means two RMDs hit your taxable income in a single year, potentially pushing you into a significantly higher tax bracket. For someone with a $600,000 balance, this could mean roughly $45,000 in forced distributions in one year instead of $23,000, with real consequences for Social Security taxation and Medicare premiums.
SECURE 2.0 Changes That Reshuffled the RMD Rules
The SECURE 2.0 Act of 2022 made several meaningful changes to RMD rules. Some are clearly beneficial. Others created new planning opportunities that most account holders haven’t been told about.
RMD age pushed to 73 now, 75 in 2033
The original SECURE Act of 2019 moved the RMD starting age from 70½ to 72. SECURE 2.0 pushed it further to 73 for people turning 72 after December 31, 2022. Starting January 1, 2033, the age rises again to 75. This gives younger retirees additional years of tax-deferred growth and more time for Roth conversion strategies before mandatory withdrawals begin. For someone who retires at 62, the gap between retirement and RMDs is now potentially 13 years, a substantial window for tax planning.
Penalty reduction from 50% to 25% (or 10% with quick correction)
The old penalty for missing an RMD was brutal: 50% of the amount not withdrawn. SECURE 2.0 reduced this to 25%. If you correct the mistake within two years by taking the distribution and filing Form 5329, the penalty drops further to just 10%. This is a significant safety net for retirees who miscalculate or simply forget. On a $25,000 missed RMD, the penalty went from $12,500 under the old rules to $6,250 under the new standard, or $2,500 if corrected promptly.
The still-working exception and its limits
If you’re still employed at 73 and don’t own more than 5% of the company, you can delay RMDs from your current employer’s 401(k) plan until you actually retire. This exception does not apply to IRAs, previous employer plans, or any account where you’re a 5% or greater owner. The practical implication: if you consolidated old 401(k) accounts into your current employer’s plan, those funds benefit from the delay. If you left them scattered across old plans or rolled them into IRAs, RMDs begin at 73 regardless of your employment status.
Strategic Moves to Reduce the Tax Burden of RMDs
RMDs are mandatory, but their tax impact is not fixed. Several legal strategies can reduce the income tax hit, though each requires advance planning.
Qualified Charitable Distributions: donate your RMD tax-free
If you’re 70½ or older, you can direct up to $105,000 per year (2024 limit, adjusted for inflation) from your IRA directly to a qualified charity. This Qualified Charitable Distribution satisfies your RMD without adding a cent to your taxable income. The money goes straight from your IRA to the charity. QCDs are not available directly from 401(k) plans, so you’d need to roll the relevant portion to an IRA first. For retirees who donate to charity regularly, QCDs are one of the most efficient tax moves available, effectively eliminating the income tax on the donated portion.
Pre-RMD Roth conversions to shrink future mandatory withdrawals
Every dollar converted from a traditional 401(k) or IRA to a Roth before RMDs begin reduces the balance subject to future mandatory distributions. If you retire at 62 with $800,000 in a traditional 401(k), converting $50,000 per year for 10 years moves $500,000 to a Roth where it will never face RMDs. You pay income tax on each conversion, but at rates you control by choosing conversion amounts that stay within favorable brackets. The remaining $300,000 (plus growth) generates much smaller RMDs at 73 than the original $800,000 would have.
FAQ
Can I take more than my RMD in a given year?
Yes. The RMD is a floor, not a ceiling. You can withdraw any amount above the minimum. However, excess withdrawals do not count toward future years’ RMDs. If your RMD is $25,000 and you withdraw $50,000, you’ve met this year’s requirement but next year’s RMD is recalculated independently based on the December 31 balance.
Do I have to spend my RMD or can I reinvest it?
You must withdraw the money from the retirement account, but you’re free to deposit it into a taxable brokerage account, savings account, or any other investment vehicle. The withdrawal triggers the tax event regardless of what you do with the funds afterward. Many retirees who don’t need the income simply reinvest their RMDs in a taxable brokerage account to maintain portfolio growth.
How do RMDs work if I have multiple 401(k) accounts?
Unlike IRAs, where you can calculate the total RMD across all accounts and withdraw it from any single IRA, 401(k) RMDs must be calculated and taken separately from each plan. If you have two old 401(k) accounts, each with its own balance, you must take the correct RMD from each one individually. This is a common compliance mistake that consolidating accounts into a single IRA or 401(k) before RMD age can prevent.
What happens to RMDs when the account owner dies?
If the account owner dies before taking their RMD for that year, the beneficiary must take it by December 31 of the year of death. Going forward, the SECURE Act’s 10-year rule requires most non-spouse beneficiaries to empty the inherited account within 10 years, with annual RMDs potentially required during that period depending on the deceased’s age. Spouse beneficiaries have more flexible options including rolling the inherited account into their own retirement plan.
Can I satisfy my RMD with an in-kind distribution instead of cash?
Yes. You can transfer securities directly from your 401(k) or IRA to a taxable account without selling them first. The fair market value of the transferred assets on the date of distribution counts toward your RMD. This is useful if you hold specific investments you want to keep. The tax obligation is based on the market value at transfer, not the original cost basis. Once in the taxable account, future gains are subject to capital gains tax rules rather than ordinary income rates.