Required Minimum Distributions: Complete Guide for 2024

Imagine celebrating your 73rd birthday, only to discover six months later that you owe the IRS a penalty equal to 25% of the money you should have withdrawn from your retirement account but didn't. For someone with a $500,000 IRA who forgot their RMD, that's a $4,500 mistake (or more, depending on the required amount).

This happens more often than you'd think. Required Minimum Distributions catch thousands of Americans off guard every year, despite being a fundamental part of retirement tax planning. The good news? Once you understand how RMDs work, they're actually pretty straightforward to manage.

Think of your traditional IRA or 401(k) as a tax deal you made with the government decades ago. You got a tax deduction when you contributed, your money grew tax-deferred, but eventually the IRS wants to collect. Required Minimum Distributions are how the government ensures you actually pay taxes on that money during your lifetime.

Here's the essential concept: once you reach a certain age (currently 73), you must withdraw a minimum amount from your tax-deferred retirement accounts each year. You'll pay ordinary income tax on these withdrawals, just like you would on a paycheck.

Which accounts require RMDs?

• Traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• Traditional 401(k)s and 403(b)s
• Most inherited retirement accounts

Which accounts DON'T require RMDs during your lifetime?

• Roth IRAs (though inherited Roth IRAs do have RMDs)
• Roth 401(k)s (starting in 2024, thanks to SECURE 2.0)
• HSAs (Health Savings Accounts)

The RMD age has changed several times in recent years, which creates confusion. Here's where we stand in 2024:

The current RMD age is 73, thanks to the SECURE 2.0 Act passed in late 2022. But your required beginning age depends on when you were born:

• Born before July 1, 1949: RMDs started at age 70½
• Born between July 1, 1949 and December 31, 1950: RMDs start at age 72
• Born January 1, 1951 or later: RMDs start at age 73
• Born in 1960 or later: RMDs will start at age 75 (beginning in 2033)

Your first RMD is due by April 1 of the year after you turn 73. Every subsequent RMD must be taken by December 31. Here's the catch: if you wait until April 1 to take your first RMD, you'll need to take two distributions in that same year (one for the previous year, one for the current year), which could push you into a higher tax bracket.

Most financial advisors recommend taking your first RMD in the year you turn 73, rather than waiting until April of the following year, to spread out the tax impact.

The IRS uses life expectancy tables to determine how much you must withdraw each year. The idea is to spread your distributions over your expected remaining lifetime. Here's the straightforward calculation:

RMD = Account Balance ÷ Life Expectancy Factor

For most people, you'll use the IRS Uniform Lifetime Table. Here's how it works with a real example:

Let's say you're 73 years old and your traditional IRA balance was $500,000 on December 31 of last year. According to the Uniform Lifetime Table, your distribution period at age 73 is 26.5 years.

$500,000 ÷ 26.5 = $18,868 (your RMD for this year)

Each year, you'll repeat this calculation using:

• Your account balance as of December 31 of the previous year
• Your current age's life expectancy factor from the IRS table

As you get older, the life expectancy factor gets smaller, which means your RMD percentage increases. At 73, you're withdrawing about 3.77% of your balance. By age 80, it's about 4.95%. By age 90, it jumps to 8.77%.

Important note: You calculate RMDs separately for each traditional IRA you own, but you can withdraw the total amount from just one account (or any combination you choose). For 401(k)s, you must calculate and withdraw from each 401(k) separately.

Here's one of the best-kept secrets in retirement planning: if you're charitably minded, you can turn your RMD into a tax-saving opportunity through Qualified Charitable Distributions (QCDs).

A QCD lets you donate money directly from your IRA to an eligible charity. The donation counts toward your RMD requirement but doesn't increase your adjusted gross income. This is huge because it means:

• You satisfy your RMD requirement
• You don't pay income tax on the distribution
• Your AGI stays lower (which can affect Medicare premiums, Social Security taxation, and other income-based thresholds)
• You support causes you care about

QCD rules to remember:

• You must be 70½ or older (yes, different from the RMD age)
• Maximum of $105,000 per year (adjusted for inflation)
• The charity must be an eligible 501(c)(3) organization
• The transfer must go directly from your IRA to the charity (you can't withdraw and then donate)
• You don't get a charitable deduction (because the money was never included in your income)

For many retirees who don't need their full RMD for living expenses and who normally give to charity anyway, QCDs are a no-brainer. Instead of taking your RMD, paying tax on it, and then writing a check to your favorite charity, you skip the tax altogether.

The penalty for missing an RMD used to be brutal: 50% of the amount you should have withdrawn. Thanks to SECURE 2.0, it's been reduced but it's still painful.

Current penalty structure:

• Standard penalty: 25% of the amount you failed to withdraw
• Reduced penalty: 10% if you correct the mistake during a correction window (generally within two years and before the IRS notifies you)

Plus, you still have to take the distribution and pay income tax on it. So if you were supposed to withdraw $20,000 and didn't, you could owe a $5,000 penalty (or $2,000 if corrected quickly) on top of the income tax.

If you discover you missed an RMD:

• Take the distribution immediately
• File IRS Form 5329 with your tax return
• Request a penalty waiver if you have reasonable cause (illness, incorrect advice, etc.)
• Keep documentation of your correction

The IRS has historically been somewhat lenient with penalty waivers if you correct the error quickly and can show reasonable cause, but it's far better to avoid the situation entirely.

If you've inherited an IRA, the rules changed dramatically with the SECURE Act of 2019. This is where things get complicated, because the rules depend on who you are and when the original owner died.

For spouses (the most flexible option):

• Treat the IRA as your own
• Roll it into your own IRA
• Remain as beneficiary and use your life expectancy for RMDs

For non-spouse beneficiaries (most children, friends, etc.):

If you inherited the account after December 31, 2019, you generally must empty the entire account within 10 years of the original owner's death. You can take distributions whenever you want during those 10 years, but the account must be zero by December 31 of the 10th year.

However, if the original owner had already started taking RMDs, you must continue taking annual RMDs during the 10-year period (yes, this is confusing and the IRS has changed guidance on this multiple times).

Exceptions to the 10-year rule (known as "eligible designated beneficiaries"):

• Surviving spouses
• Minor children of the account owner (until they reach age 21, then the 10-year clock starts)
• Disabled or chronically ill individuals
• Beneficiaries not more than 10 years younger than the account owner

These eligible designated beneficiaries can stretch distributions over their life expectancy, like the old rules allowed.

Now that you understand the rules, here are practical strategies to make RMDs work for you:

1. Consider Roth conversions before RMDs start

If you're in your 60s and not yet taking RMDs, converting some traditional IRA money to a Roth IRA can reduce future RMDs. You'll pay tax on the conversion now, but that money grows tax-free in the Roth and never has RMDs during your lifetime.

2. Plan your first RMD timing carefully

Remember, you can delay your first RMD until April 1 of the year after you turn 73, but this means taking two distributions in one year. Run the numbers to see which approach keeps you in a lower tax bracket.

3. Automate your RMDs

Most custodians (Fidelity, Vanguard, Schwab, etc.) will calculate and automatically distribute your RMD on a schedule you choose. Set it and forget it to avoid penalties.

4. Use RMDs strategically for tax planning

Consider taking distributions early in the year if you want more control, or spreading them throughout the year if you need monthly income.

5. Reinvest what you don't need

If you don't need your RMD for expenses, you can reinvest it in a taxable brokerage account after paying the tax. The money keeps growing, just not tax-deferred.

6. Consider the still-working exception

If you're still working at age 73 and participating in your employer's 401(k), and you don't own more than 5% of the company, you can delay RMDs from that 401(k) until you retire. (This doesn't apply to IRAs, though.)

Using this year's balance instead of last year's: Your RMD calculation always uses the December 31 balance from the previous year, not your current balance.

Forgetting about all your accounts: You must calculate RMDs for each traditional IRA and each 401(k) separately. It's easy to forget about an old 401(k) from a previous employer.

Assuming Roth 401(k)s don't have RMDs: They didn't until 2024. Now they're treated like Roth IRAs (no RMDs during your lifetime).

Missing the first-year deadline: Your first RMD can be delayed until April 1, but all others are due by December 31. Don't confuse the two.

Counting only the distribution, not the taxable amount: If you rolled over money or made non-deductible contributions, the calculation gets more complex. Most people have straightforward situations, but it's worth double-checking.

Required Minimum Distributions don't have to be stressful. With some planning, they become just another part of your retirement income strategy. Here's your action plan:

If you're approaching 73:

• Mark your calendar for the year you turn 73
• Review all your retirement accounts (don't forget old 401(k)s)
• Consider Roth conversions in the years before RMDs start
• Talk with a tax professional about your first RMD timing

If you're already taking RMDs:

• Set up automatic distributions to avoid missing deadlines
• Explore QCDs if you're charitably inclined
• Review whether you need the full amount or can reinvest some
• Keep good records of all distributions

If you've inherited an IRA:

• Understand which rules apply to your situation
• Create a distribution strategy for the 10-year period
• Consider the tax impact of taking everything in year 10 versus spreading it out

The most important thing is to stay informed and proactive. The IRS doesn't send reminders about RMDs. It's your responsibility to know the rules and take your distributions on time.

Disclaimer: This article is for informational purposes only and should not be considered financial or tax advice. fidser. is not a certified financial planning firm. Everyone's situation is unique, and tax laws change frequently. Always consult with a qualified financial advisor or tax professional before making decisions about your retirement accounts and distribution strategies.