If you’re turning 73 this year, you’re required to begin taking annual RMDs from tax-deferred retirement accounts like traditional IRAs. Failing to take the required amount comes with a stiff penalty—25% of what you should’ve withdrawn. However, if you catch up by taking the full withdrawal, the IRS may reduce the penalty to 10%.
You must take your first RMD by April 1 of the year after you reach age 73. After that, RMDs are due by December 31 each year. That said, delaying your first withdrawal can lead to a higher tax bill, as you’ll have to take two RMDs in one year—the delayed one and the current year’s.
Each retirement account’s RMD is calculated separately, although in some cases (like with traditional IRAs), you can combine the total and take the full amount from just one account. This is known as RMD aggregation.
To calculate your RMD:
- Look at the account balance as of the previous year’s December 31.
- Divide that by the distribution period based on your age, as listed in IRS Publication 590-B.
However, if your spouse is your sole beneficiary and more than 10 years younger, or if you’re inheriting an IRA, different IRS tables apply.
Withdrawals from tax-deferred accounts are generally taxable, and if you’ve built up a large balance, RMDs could push you into a higher tax bracket. To help manage this:
- Consider starting withdrawals early: Taking distributions before RMD age can reduce your future required amounts and spread your tax liability over more years.
- Think about Roth conversions: Converting some funds from a traditional IRA to a Roth IRA means paying taxes now—but future withdrawals are tax-free and RMDs won’t apply to Roth IRAs. This strategy may make sense if you expect your tax rate to rise later or believe future tax laws will be less favorable.
- Use Qualified Charitable Distributions (QCDs): If you’re 70½ or older, you can donate up to $108,000 (as of 2025, adjusted for inflation) from your IRA directly to a qualified charity. This can count toward your RMD and won’t be taxed.
- Explore Net Unrealized Appreciation (NUA): If you hold company stock in a workplace retirement plan and are at least 59½ or have left your employer, NUA may offer a way to reduce future RMDs and lower taxes.
In short, RMD rules can be complex, but smart planning—starting withdrawals early, converting to Roth accounts, or using charitable strategies—can reduce tax burdens and keep your retirement income more manageable.
