Required Minimum Distributions (RMDs) are mandatory annual withdrawals from tax-deferred retirement accounts such as traditional IRAs, 401(k)s, 403(b)s, and other qualified plans. The IRS requires these distributions to ensure that tax-deferred retirement savings are eventually taxed. Under the SECURE 2.0 Act, RMDs must begin by April 1 of the year following the year you turn 73. The RMD is calculated by dividing the prior year-end account balance by a distribution period factor from the IRS Uniform Lifetime Table based on your age.

The Uniform Lifetime Table assumes a beneficiary exactly 10 years younger than the account owner. If your sole beneficiary is a spouse who is more than 10 years younger, you may use the Joint Life and Last Survivor Expectancy Table, which produces a longer distribution period and therefore a smaller RMD. The penalty for failing to take your full RMD was reduced by the SECURE 2.0 Act from 50% to 25% of the shortfall amount (10% if corrected promptly), but it remains important to withdraw at least the minimum each year.

As you age, the distribution period decreases, meaning the required withdrawal percentage of your balance increases each year. At age 73, the factor is 26.5 (approximately 3.77% of your balance). By age 85, the factor drops to 16.0 (6.25%), and at age 95, it is 8.9 (11.24%). Strategic planning around RMDs can include Roth conversions before RMDs begin, qualified charitable distributions (QCDs) to reduce taxable income, and coordinating withdrawals with other income sources to minimize the overall tax burden in retirement.