How required minimum distributions work after age 73

Once you reach age 73, the IRS requires you to start taking money out of most tax-deferred retirement accounts every year. These withdrawals are called required minimum distributions, or RMDs. Understanding how they work can help you plan ahead and avoid some costly surprises.

What accounts are subject to RMDs

RMDs apply to tax-deferred accounts, which include:

• Traditional IRAs
• Rollover IRAs
• SEP IRAs
• SIMPLE IRAs
• Most 401(k), 403(b), and 457(b) plans

Roth IRAs are a notable exception. As of current law, Roth IRAs do not require distributions during the original owner's lifetime. Roth 401(k)s, however, were previously subject to RMDs, though legislation has changed that for plan years after 2023. Rules can change, so it is worth confirming current requirements with a qualified professional.

How the RMD amount is calculated

The IRS uses a formula to determine your minimum withdrawal each year:

RMD = Account balance ÷ Distribution period

Your account balance is measured as of December 31 of the prior year. The distribution period comes from IRS life expectancy tables — most people use the Uniform Lifetime Table. The IRS updates these tables periodically to reflect changes in average life expectancy.

Because the calculation resets every year using your current age and your prior year-end balance, the dollar amount of your RMD will change from year to year. If your account grows, your RMD may increase. If your balance drops, your RMD may decrease.

What if you have multiple accounts

If you have several traditional IRAs, you can add up the total RMD across all of them and take the full amount from one or more accounts — as long as the total is satisfied. However, 401(k) RMDs are generally treated separately. Each 401(k) requires its own distribution unless plan rules allow otherwise. This is worth discussing with your plan administrator.

When you must take your first RMD

You must take your first RMD by April 1 of the year after you turn 73. Every RMD after the first must be taken by December 31 of each calendar year.

One thing to watch: if you delay your first RMD until April 1, you will effectively take two distributions that calendar year — the delayed first one and the second one due by December 31. Two distributions in the same year means more taxable income in that year, which could push you into a higher tax bracket or affect other income-based calculations.

There is no rule that says you must wait. Taking your first RMD in the year you turn 73 is often simpler.

How RMDs are taxed

Most RMD dollars are taxed as ordinary income in the year you receive them. This is because contributions to traditional, SEP, and SIMPLE IRAs were typically made pre-tax, meaning taxes were deferred — not eliminated.

If you made any nondeductible (after-tax) contributions to a traditional IRA, a portion of each distribution may be tax-free. Tracking this requires IRS Form 8606.

Because RMDs add to your taxable income each year, they can have ripple effects:

• They may increase the portion of your Social Security benefits that is taxable.
• They may affect Medicare Part B and Part D premium surcharges, which are based on income from two years prior.
• They may affect your eligibility for certain deductions or credits.

This is one reason why some people consider strategies like Roth conversions in the years before RMDs begin. Converting pre-tax funds to a Roth account while you are in a lower tax bracket reduces future RMD amounts. There are trade-offs to this approach — including paying taxes now — so it is important to review the full picture with a tax or financial professional.

The penalty for missing an RMD

Missing an RMD or taking less than the required amount has historically carried a steep penalty. Under recent legislation, that penalty is 25% of the amount not withdrawn. The penalty can be reduced to 10% if corrected within a specific window.

This makes it important to track your RMD obligations each year, especially if you have multiple accounts or recently rolled over a workplace plan.

If you are still working at 73

If you are still working at age 73 and participate in your current employer's 401(k), you may be able to delay RMDs from that specific plan until you retire — as long as you do not own more than 5% of the company. This exception does not apply to IRAs or to old 401(k) accounts from previous employers.

Business owners should note that the 5% ownership threshold may affect their ability to use this delay. It is worth confirming with your plan's rules and a qualified professional.

Using your RMD thoughtfully

An RMD is a minimum — you are free to withdraw more than the required amount if it fits your situation. Many people use RMDs as part of their regular retirement income alongside Social Security, pensions, or other sources.

Some people who do not need their RMD for living expenses look at options such as:

• Reinvesting in a taxable brokerage account
• Gifting up to $105,000 per year (as of 2024, adjusted periodically for inflation) directly to a qualified charity through a qualified charitable distribution, or QCD — this can satisfy your RMD while excluding the amount from taxable income
• Funding a 529 account for grandchildren

Each of these has its own rules, benefits, and limitations. None of them is right for everyone, and tax outcomes depend on individual circumstances.

Questions worth asking before RMDs begin

If you are within five years of retirement, here are some questions worth exploring with your financial and tax professionals:

• How large might my annual RMDs be, and how will they affect my taxable income?
• Does it make sense to consider partial Roth conversions now?
• How will RMDs interact with my Social Security timing decision?
• Do I have old 401(k) accounts I should consider rolling into an IRA or consolidating?
• Am I keeping accurate records of any nondeductible IRA contributions?

RMDs are not a problem to solve — they are a built-in feature of tax-deferred savings. Understanding how they work gives you more time to make thoughtful decisions.

Important disclosures

• This content is for general educational purposes only and is not investment, tax, or legal advice.
• All investing involves risk, including the possible loss of principal. Past performance does not guarantee future results.
• Consult a qualified professional about your individual situation before making any financial, tax, or legal decisions.
• Tax rules, IRS tables, and RMD requirements are subject to change by legislation or regulation. The information above reflects general rules and may not reflect the most current law at the time you read this.
• Social Security rules are complex and individual outcomes depend on personal circumstances including earnings history, age, and marital status. This article is not a substitute for analysis of your specific Social Security record.
• Annuity and insurance products mentioned in connection with any strategies involve their own costs, surrender charges, and risks. They are not suitable for everyone.
• Stewart Ginn is a FINRA-registered financial advisor licensed in California and Colorado.
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• This content is for informational purposes only and is not tax advice. Potential tax outcomes vary by individual situation. Please consult a qualified tax professional.
• Investing involves risk including the possible loss of principal. There is no guarantee that any investment strategy will be successful.
• Past performance is no guarantee of future results.
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