Required Minimum Distributions Explained: What Retirees Keep Getting Wrong

Required minimum distributions explained simply: the IRS does not let tax-deferred retirement savings grow forever. Once you reach age 73, you must begin withdrawing a minimum amount each year from accounts like a traditional IRA, 401(k), 403(b), and most other employer-sponsored plans. According to IRS Publication on Retirement Topics, the annual withdrawal amount is calculated using your account balance and a life expectancy factor from IRS tables.

With the SECURE 2.0 Act reshaping the rules in 2023 and 2024, and another age threshold change coming in 2033, millions of retirees are operating on outdated assumptions — and paying dearly for it.

How Are RMDs Actually Calculated?

Your RMD is calculated by dividing your account’s prior December 31 balance by a life expectancy factor from the IRS Uniform Lifetime Table. For most account holders, this is straightforward — but the math changes if your sole beneficiary is a spouse more than 10 years younger.

For example, if your traditional IRA balance was $500,000 on December 31 of the prior year and your IRS life expectancy factor at age 73 is 26.5, your RMD is approximately $18,868. The IRS updates these factors periodically; the current tables took effect in 2022 and reflect longer life expectancies, meaning slightly lower annual withdrawals than before.

Which Accounts Are Subject to RMDs?

RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and 457(b) plans. Roth IRAs are the notable exception — the IRS exempts Roth IRAs from RMDs during the original owner’s lifetime. Starting in 2024, the SECURE 2.0 Act also eliminated RMDs for Roth accounts inside employer-sponsored plans.

What Are the Biggest RMD Mistakes Retirees Keep Making?

The most costly mistake is missing the deadline entirely. The penalty for failing to take a required minimum distribution is 25% of the amount not withdrawn — reduced to 10% if corrected within a two-year window, per the SECURE 2.0 Act update. Even so, this is one of the steepest penalties in the tax code.

A second common error is aggregation confusion. You can aggregate RMDs across multiple traditional IRAs and take the total from any one of them — but 401(k) RMDs must be taken separately from each account. Retirees who consolidate the math incorrectly end up with a shortfall and a penalty. If you have multiple retirement accounts, reviewing common 401k rollover mistakes before consolidating can help you avoid compounding the problem.

The First-Year Delay Trap

First-time RMD takers can delay their initial withdrawal until April 1 of the year following the year they turn 73. This sounds like a benefit — but it means taking two RMDs in a single tax year, which can push income into a higher bracket and trigger IRMAA surcharges on Medicare premiums. Most financial planners advise against delaying unless your income situation clearly supports it.

How Did SECURE 2.0 Change the RMD Rules?

The SECURE 2.0 Act, signed into law in December 2022, made the most significant RMD changes in decades. The starting age moved from 70½ (pre-SECURE Act) to 72, and then again to 73 starting January 1, 2023. It rises to 75 for anyone born in 1960 or later, effective 2033.

For retirees still working past 73, the “still working” exception allows you to delay RMDs from your current employer’s plan — but only if you own less than 5% of the company. This exception does not apply to IRAs. Understanding these rules becomes especially relevant if you are starting retirement planning later in life and need to optimize every year of tax-deferred growth.

What Strategies Can Reduce Your RMD Tax Burden?

Several legal strategies can lower the tax impact of required minimum distributions. The most powerful is a Qualified Charitable Distribution (QCD), which allows IRA owners aged 70½ or older to transfer up to $105,000 per year (indexed for inflation in 2024) directly to a qualifying charity. The QCD counts toward your RMD but is excluded from taxable income.

A second strategy is a Roth conversion ladder — converting portions of a traditional IRA to a Roth IRA before RMDs begin. This reduces the future balance subject to mandatory withdrawals and creates a tax-free pool of income. If you are weighing account types, our comparison of traditional IRA vs Roth IRA for late starters covers the trade-offs in detail.

Using a Health Savings Account to Offset RMD Income

If you are still eligible to contribute to an HSA before Medicare enrollment, building that balance can offset medical costs in retirement that might otherwise push RMD income higher in net terms. The HSA as a stealth wealth-building tool is often overlooked in RMD planning conversations. HSA withdrawals for qualified medical expenses are tax-free, creating a natural hedge against higher RMD-driven income.

What Are the RMD Rules for Inherited IRAs?

Inherited IRA rules are among the most misunderstood in all of retirement planning. Non-spouse beneficiaries who inherited an IRA after January 1, 2020, generally must withdraw the entire balance within 10 years under the SECURE Act’s “10-year rule.” Annual RMDs within those 10 years may also be required if the original owner had already begun taking distributions.

The IRS issued guidance in 2023 and 2024 clarifying the annual distribution requirement within the 10-year window — and provided penalty relief through 2024 for beneficiaries who had not taken annual RMDs. According to IRS FAQs on RMDs, surviving spouses retain the most flexibility and can roll an inherited IRA into their own account, restarting the RMD clock at their own age.

If you are also managing a Solo 401(k) or other self-employed retirement account alongside an inherited IRA, the interaction of these rules adds complexity that warrants professional guidance. Additionally, reviewing retirement planning mistakes people make in their 50s can help beneficiaries avoid poor decisions when an inheritance arrives unexpectedly.

Frequently Asked Questions

What is the penalty for missing a required minimum distribution?

The penalty is 25% of the amount you failed to withdraw, reduced to 10% if you correct the shortfall within two years. The SECURE 2.0 Act lowered this from the prior 50% penalty. You must still pay income tax on the RMD amount itself.

Do Roth IRAs have required minimum distributions?

No. Roth IRAs are exempt from RMDs during the original owner’s lifetime. Starting in 2024, SECURE 2.0 also eliminated RMDs for Roth accounts inside employer plans like Roth 401(k)s. Beneficiaries who inherit Roth IRAs, however, are still subject to the 10-year rule.

Can I take more than my required minimum distribution in a given year?

Yes. You can always withdraw more than your RMD amount. Excess withdrawals are taxable as ordinary income but do not reduce future RMD obligations — each year’s RMD is calculated fresh from that year’s prior-December-31 balance.

What happens to RMDs if I am still working at age 73?

If you are still employed and own less than 5% of the company, you may delay RMDs from your current employer’s retirement plan. IRAs are not covered by this exception — RMDs from traditional IRAs must begin at 73 regardless of employment status.

Can I use my RMD to fund a Roth IRA contribution?

No. RMD amounts cannot be converted directly to a Roth IRA or used to fund a Roth contribution. You must first withdraw the RMD and pay the taxes, then use separate earned income to make any Roth contribution you are otherwise eligible for.

How do required minimum distributions affect Medicare premiums?

RMDs are counted as ordinary income and can trigger IRMAA (Income-Related Monthly Adjustment Amount) surcharges on Medicare Part B and Part D premiums. In 2024, IRMAA thresholds begin at $103,000 for individuals, making RMD planning a critical part of healthcare cost management in retirement.