Required Minimum Distributions

Once you reach your 70s, the IRS mandates that you begin taking Required Minimum Distributions (RMDs) from most retirement accounts. An RMD is the minimum amount you must withdraw annually to avoid IRS penalties.

Many retirees have an IRA—which may be one of their largest retirement assets. RMDs are required for traditional IRAs and most employer-sponsored retirement plans.

If you fail to take the correct amount by the IRS deadline, you could face significant penalties.

What Happens If You Miss the Deadline?

If you’re in your early 70s or getting close, timing matters. The IRS imposes a 25% penalty on any required amount not withdrawn. For example, if you miss a $20,000 RMD, you could owe $5,000 in penalties—plus income taxes on the full $20,000.

When Do RMDs Begin?

Your RMD start age is based on your birth year:

• Born on or before June 30, 1949: RMDs began at age 70½
• Born between July 1, 1949 and December 31, 1950: RMDs begin at age 72
• Born January 1, 1951 through December 31, 1959: RMDs begin at age 73
• Born January 1, 1960 or later: RMDs start at age 75 beginning in 2033 (unless laws change)

Your first RMD must be taken by April 1 of the year following the year you reach your required RMD age. Subsequent RMDs must be taken by December 31 each year.

Quick Reference: RMD Start Ages by Birth Year

Birth Year	RMD Age
On or before June 30, 1949	70½
July 1, 1949 – Dec 31, 1950	72
Jan 1, 1951 – Dec 31, 1959	73
Jan 1, 1960 or later	75 (starting 2033)

Recent legislation, such as the SECURE 2.0 Act, has gradually increased the starting age for RMDs. Stay updated, as future rules could continue to change.

How Much Do You Need to Take Out?

The IRS provides worksheets to help you calculate your RMD based on your account balance and life expectancy factor. Most financial institutions will also report the required minimum amount for your accounts each year.

Remember: RMDs must be recalculated each year using your year-end account balance and the IRS Uniform Lifetime Table. Most custodians provide this calculation automatically, but it’s your responsibility to ensure the full amount is withdrawn on time.

Contact Foxcove Financial for an educational review or to discuss how RMDs fit into your overall retirement income plan.

Should You Take It All Out at Once?

While you must withdraw at least the required minimum, you are allowed to take more than the minimum in any given year. However, RMDs are taxed as ordinary income, not at the lower capital gains rate.

Depending on your income bracket, the IRS could tax 10% to 37% of your distribution, and your state may tax it too. Because each state has its own rules, be sure to review your state’s taxation of retirement distributions.

Which Accounts Require RMDs?

RMDs apply to Traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored plans like 401(k)s and 403(b)s. Roth IRAs are exempt from RMDs during the original account holder’s lifetime.

However, inherited Roth IRAs do have distribution rules—though they are typically tax-free.

How Can You Reduce the Tax Impact?

Some retirees manage RMD-related taxes by using strategies such as qualified charitable distributions (QCDs) or by spreading withdrawals throughout the year. Products like annuities may help structure income streams or provide tax deferral, but all strategies should be evaluated in light of IRS rules and your goals.

Some insurance companies offer automated RMD calculation and withdrawal services for convenience and peace of mind.

Qualified Charitable Distributions (QCDs): If you’re age 70½ or older, you can direct up to $100,000 per year from an IRA to a qualified charity. This can satisfy all or part of your RMD and may lower your taxable income. (Consult the IRS or your tax advisor for eligibility and details.)

What If You Don’t Need the Money?

If you don’t rely on RMDs for living expenses, you can reinvest the money or use it for legacy planning. For example, funds could be used to purchase an annuity or a life insurance policy to support your loved ones or charitable interests.

What About Special Cases or Unusual Situations?

RMD rules include several exceptions and provisions for unusual circumstances. For example, if your account has experienced significant losses and lacks enough value to meet your RMD, the IRS may allow you to fully deplete the account without penalties.

Special rules also apply for beneficiaries who inherit retirement accounts. Review the latest IRS guidance or consult with a tax professional for details on your specific situation.

For the most current information, see the IRS Required Minimum Distributions (RMDs) page.

The information provided here is for general educational purposes only and should not be considered individualized tax or investment advice. For questions about your personal tax situation, consult your CPA or tax advisor.