Required Minimum Distributions: Rules, Penalties, and Planning Strategies

Required minimum distributions force taxable withdrawals from traditional retirement accounts starting at age 73. Understanding RMD calculations, aggregation rules, and qualified charitable distributions can help you minimize the tax impact and avoid the 25% penalty for missed distributions.

The basics: RMDs begin at age 73 from traditional IRAs and most employer plans. The annual amount equals your prior year-end account balance divided by an IRS life expectancy factor. At 73, the factor is 26.5, meaning roughly 3.8% of your balance must come out as taxable income.

The penalty for missing one: A missed RMD triggers a 25% excise tax on the shortfall. If you correct the mistake promptly under the IRS correction window, the penalty drops to 10%. On a $500,000 account, even the reduced penalty is nearly $1,900.

Planning angles worth knowing: You can take more than the minimum. You can aggregate RMDs across multiple IRAs and take the total from any one of them, though 401(k) RMDs must come from each plan individually. And qualified charitable distributions let you send up to $111,000 per year (2026 limit, indexed for inflation) directly from your IRA to charity, satisfying your RMD without adding to taxable income.

The tradeoff: RMDs are mandatory income -- you can plan around them but not avoid them. The real savings come from reducing future RMDs through Roth conversions before age 73.