RMDs are mandatory annual withdrawals the IRS requires from traditional 401(k) and IRA accounts starting at 73, or 75 if you were born in 1960 or later, taxed as ordinary income whether or not you need the money that year.
Why this matters two to eight years from retirement
RMDs do not start at retirement. For anyone born in 1960 or later, they start at 75, so someone retiring at 58 to 62 this year has 13 to 17 years of a pre-tax balance compounding with nobody drawing it down. The bigger that balance gets, the bigger the forced withdrawal, and the more it can push you into a higher bracket, raise your IRMAA surcharge, and increase the taxable share of your Social Security. The years before your RMDs begin are the only years you control that number. After that, the IRS does.
What this looks like for one account
A $1.5M traditional IRA growing at 6% a year from age 67 reaches roughly $2.1M by the time its owner turns 73, the RMD age for anyone born in 1959. The IRS life expectancy factor at 73 is 26.5, under the Uniform Lifetime Table, so the first RMD is that balance divided by 26.5, close to $79,000 of forced taxable income in a single year, on top of Social Security and any other income already on the return. A Roth conversion strategy executed in the years before RMDs begin shrinks the balance the RMD formula applies to, which shrinks every forced withdrawal after it. These figures are illustrative and depend on actual account growth and the IRS table in effect when your RMDs begin.
What happens if you miss one
The IRS treats a missed RMD as an excise tax, not a suggestion. SECURE 2.0 cut that tax from 50% of the shortfall to 25%, and down to 10% if you correct it within roughly two years of the missed deadline. Inherited IRAs carry a related problem: most non-spouse beneficiaries now have to empty the account by the end of the tenth year after the original owner’s death, and if the owner had already started RMDs, they also have to take annual withdrawals in years 1–9. That rule is separate from RMDs on your own accounts, but a full plan has to account for it at the same time.
Related reading
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