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Everything You Need to Know About RMDs

What are RMDs

Once you turn 73, the IRS requires you to take a certain amount of money out of certain retirement accounts every year. That's to help ensure the government gets tax revenue from tax-sheltered retirement accounts.

The accounts subject to RMDs are:

  • Traditional IRAs
  • Rollover IRAs
  • Inherited IRAs
  • SEP IRAs
  • 401(k), 403(b) and 457(b)s
  • Keogh Plans

When You Need to Take Your RMD

Exactly when you need to make your first Required Minimum Distribution is more complicated than you might think. But RMD rules are tax rules, so you shouldn't be too surprised.

You have to take your first Required Minimum Distribution by April 1 of the year after you turn 73. After your first RMD year, you need to make your required distributions by December 31 of each successive year.

But here's why you don't want to wait until April 1 of the year after you turn 73: Then you'll have to take two distributions in the same year, and that could elevate you into a steeper tax bracket, increasing your taxes due.

RMD Taxes and Penalties

Your Required Minimum Distribution can get you with a very high tax bill. That's because RMDs are taxed as ordinary income at your federal income tax rate and you may owe state taxes on the money, too.

The SECURE 2.0 Act decreases the penalty tax for missed RMDs (or simply taking too little) to 25%, and if the mistake is corrected during a two-year “correction window” the penalty is further reduced to 10%.