How RMDs Affect Your Tax Bill: What They Are, When They Start, and What to Expect

If you have money in a traditional IRA, 401(k), 403(b), or most other employer-sponsored retirement accounts, the IRS eventually requires you to start withdrawing it - and to pay income tax on what you take out. These mandatory withdrawals are called Required Minimum Distributions, or RMDs. They are one of the most significant - and most misunderstood - tax events in retirement.

Here is a plain-language overview of how they work and what they mean for your tax picture.

What Is an RMD?

An RMD — Required Minimum Distribution — is the amount the IRS requires you to withdraw each year from traditional IRAs, 401(k)s, and most other tax-deferred retirement accounts. Because you received a tax deduction when those funds went in, the government eventually requires you to take the money out and pay income tax on it. Every dollar withdrawn counts as ordinary income in the year you take it.

When you contributed money to a traditional IRA or 401(k), you likely received a tax deduction at the time. The government deferred the tax until later - and RMDs are how it eventually collects. Starting at a certain age, the IRS requires you to withdraw a minimum amount each year based on your account balance and your life expectancy. Every dollar you withdraw is counted as ordinary income in the year you take it, taxed at whatever rate applies to your total income that year.

Roth IRAs are a notable exception. Because Roth contributions are made with after-tax money, qualified Roth withdrawals are not taxed - and Roth IRAs do not have RMDs during the account owner's lifetime under current law. Roth 401(k)s, however, have had different rules that have been evolving, so it is worth confirming the current status with a tax advisor if you have one.

When Do RMDs Start?

The SECURE 2.0 Act, signed in 2022, changed the starting age for RMDs. The rules have shifted more than once over the years, so the exact age that applies to you depends on your birth date. The breakdown below reflects current law, as confirmed in a Congressional Research Service report on RMD age requirements:

• Born before July 1, 1949 – RMDs began at age 70½ (already in effect)
• Born after June 30, 1949, and before January 1, 1951 – RMDs begin at age 72
• Born 1951 through 1959 - RMDs begin at age 73
• Born 1960 or later - RMDs begin at age 75

Your first RMD must be taken by April 1 of the year following the year you reach your starting age. After that, each subsequent RMD is due by December 31 of that calendar year. If you delay your first RMD to April 1, you will be taking two distributions in one tax year - which can push more income into a higher bracket and potentially affect how much of your Social Security is taxable. Most financial planners recommend taking the first RMD in the year you reach the starting age rather than waiting.

How Is the RMD Amount Calculated?

Each year's RMD equals your prior December 31 account balance divided by a life expectancy factor from the IRS Uniform Lifetime Table. At age 73 the factor is about 26.5, meaning you'd withdraw roughly 3.8% of the balance. The factor shrinks each year, so the required percentage gradually increases as you age. Each traditional IRA gets its own calculation, but you can satisfy the total from any one or combination of those accounts.

Each year, your RMD is calculated by dividing the December 31 account balance from the previous year by a distribution period factor from the IRS Uniform Lifetime Table. The factor is essentially a life expectancy estimate - it gets smaller as you age, which means the required withdrawal percentage increases over time. At age 73, the factor is roughly 26.5, meaning you would withdraw about 3.8% of the prior year's balance. By age 80, the factor drops to about 20.2, and by age 90 it is down around 12.2.

If you have multiple traditional IRAs, you calculate a separate RMD for each account based on its individual balance - but you can take the total combined amount from any one or combination of those IRA accounts. 401(k)s are different: each 401(k) generally requires its own separate withdrawal unless you roll the balance to an IRA first.

How Do RMDs Affect Your Tax Bill?

RMDs count as ordinary income and stack on top of everything else you receive — Social Security, pension, interest, and wages. A large RMD can push your total income above the threshold where more of your Social Security becomes taxable, or trigger higher Medicare Part B and D premiums through IRMAA the following year. These downstream effects are real and worth planning for before the withdrawal, not after.

RMDs count as ordinary income. That means they stack on top of Social Security, pension income, and any other taxable income you receive. The combined total determines which federal bracket applies. A larger RMD can push income above a threshold that triggers taxation of Social Security benefits, or it can increase Medicare Part B and Part D premiums through a system called IRMAA (Income-Related Monthly Adjustment Amount), which is based on income from two years prior.

What Happens If You Miss an RMD?

Missing or underpaying an RMD used to carry a steep penalty - 50% of the amount you should have taken but did not. SECURE 2.0 reduced this penalty to 25%, and further reduced it to 10% if you correct the error promptly. Still, it is a significant consequence for a straightforward administrative requirement. Most IRA custodians and 401(k) plan administrators will send reminders and may even calculate the amount for you, but the legal responsibility to take the correct distribution is yours.

One Option Worth Knowing: QCDs

If you are 70½ or older and charitably inclined, a Qualified Charitable Distribution (QCD) allows you to transfer up to $111,000 per year (as of 2026, adjusted annually for inflation) directly from your IRA to a qualified charity. The amount transferred satisfies your RMD but does not count as taxable income. This can be a meaningful way to reduce the tax impact of RMDs if you were planning to give to charity anyway. Talk to your IRA custodian and a tax advisor before setting one up - there are specific rules about which charities qualify and how the transfer must be structured.

For more on how Social Security benefit taxation interacts with RMD income, see When Is Social Security Taxable? in this series.