Required Minimum Distributions: What Retirees Must Withdraw and Pay Taxes On

If you’ve spent decades saving for retirement, you’re likely accustomed to putting money in. For a long time, the IRS was happy to let you defer taxes on those contributions, allowing your nest egg to grow. 

But that tax-deferral party has an expiration date. Eventually, the bill comes due.

Once you reach a certain age, the IRS requires you to start taking money out of your tax-deferred retirement accounts. These withdrawals are called required minimum distributions, or RMDs.

Getting RMDs right is more important than you might think, largely because mistakes are extremely expensive. Withdraw too little, and you face a steep penalty. Withdraw too much without planning, and you might accidentally push yourself into a higher tax bracket or trigger higher Medicare premiums.

If you want to satisfy the IRS without overpaying, you need to understand how RMDs are taxed and other relevant RMD tax rules.

What Is a Required Minimum Distribution?

So, what is an RMD? It’s perhaps easiest to think of a required minimum distribution as the government’s way of guaranteeing that it will be able to collect taxes on your retirement savings. Since you didn’t pay income tax on the money when you contributed it to a traditional IRA or 401(k), the IRS wants its cut now that you’re retired.

Pro tip: You can make pre-tax or after-tax contributions to a traditional IRA. If the contributions were after-tax, then only earnings on those contributions are tax. This means the original after-tax contributions are not taxed again when taken as an RMD. However, pre-tax traditional IRA contributions and their earnings are taxed at the ordinary income tax rate.

An RMD is the minimum amount you must withdraw from your account each year. You can always withdraw more than the minimum if you need the cash for living expenses, but you cannot withdraw less. If you don’t take out the full amount, the IRS imposes a penalty on the shortfall.

This rule applies primarily to tax-deferred retirement accounts. If you have a Roth IRA, you’re in luck, since Roth IRAs generally don’t require withdrawals during your lifetime because you already paid taxes on that money. However, other accounts don’t get the same pass.

Which Retirement Accounts Have RMDs?

Most retirement plans funded with pre-tax dollars fall under RMD rules. You’ll need to calculate your RMD for each of these account types if you hold them:

• Traditional IRAs: These include Rollover IRAs, SEP IRAs, and SIMPLE IRA accounts.
• 401(k) plans: Both traditional 401(k)s and Roth 401(k)s (though Roth 401(k)s are exempt starting in 2024 due to the SECURE Act 2.0).
• 403(b) plans: Common for teachers and non-profit employees.
• 457(b) plans: Often used by state and local government employees.
• Profit-sharing plans and other defined contribution plans.

If you have multiple traditional IRAs, you can calculate the RMD for each one, add them up, and withdraw the total amount from just one IRA or a combination of them. 

However, employer-sponsored retirement plans like 401(k)s and 403(b)s work differently. You generally must calculate and withdraw the RMD separately for each specific 401(k) account you own.

When Do RMDs Start?

For most current retirees, the magic RMD age is 73.

If you were born between 1951 and 1959, your required beginning date is April 1 of the year after you turn 73.

Are You Still Working?

If you’re still employed at age 73 and have a 401(k) with your current employer, you might be able to delay RMDs from that specific account until you retire. This exception generally doesn’t apply if you own more than 5% of the company sponsoring the plan. Also, RMDs from IRA accounts cannot be delayed, even if you are still working.

How Are RMDs Taxed?

RMDs are treated as ordinary income. The IRS taxes these withdrawals at your regular income tax rate, just like wages from a job. They are not taxed at the lower capital gains rates.

Because RMDs increase your total taxable income, they can have a domino effect on your overall tax picture. If you have a large 401(k) balance, your RMD could be substantial; a larger RMD might disqualify you from certain tax credits or deductions you previously claimed.

It’s smart to review your tax withholding on these distributions. You can ask your plan custodian to withhold federal taxes from your RMD check directly, which will help you avoid a surprise tax bill or underpayment penalty when you do file your return.

How RMDs Affect Social Security and Medicare

Your RMD doesn’t just impact your income tax bracket; it also changes how much of your Social Security benefit is taxable and how much you pay for Medicare.

Social Security Taxation

Social Security benefits become taxable when your "combined income" exceeds certain thresholds. Your combined income is your Adjusted Gross Income (AGI) plus non-taxable interest plus half of your Social Security benefits.

Since RMDs increase your AGI, they increase your combined income, and taking a large RMD often pushes retirees into the zone where up to 85% of their Social Security benefits become taxable.

Medicare IRMAA (Income-Related Monthly Adjustment Amount)

Medicare Part B and Part D premiums are based on your income from the two years prior, and if your RMD pushes your modified adjusted gross income (MAGI) over a specific limit, the government adds a surcharge to your premiums. This surcharge is called IRMAA.

What Happens If You Miss an RMD?

The IRS does not take kindly to missed deadlines. The penalty for failing to take an RMD is an excise tax of 25% of the amount you failed to withdraw.

So if your RMD was $20,000 and you forgot to take it, you’d owe the IRS a $5,000 missed RMD penalty.

If you correct the mistake promptly (usually within two years) the penalty may drop to 10%. If you realize you missed an RMD, you must fill out Form 5329 to report the error and pay the penalty or request a waiver. The IRS often waives the penalty if you can show the shortfall was due to "reasonable error" and that you are taking steps to remedy it.

RMD Tax Forms

Paperwork is inevitable with taxes, and RMDs are no exceptions:

Form 1099-R

Your plan custodian (the bank or brokerage holding your account) will send you Form 1099-R by January 31. It reports the total amount distributed to you during the previous tax year. You enter these figures on your Form 1040 to report the income:

• Box 1 shows the gross distribution.
• Box 2a shows the taxable amount.
• Box 4 shows any federal income tax withheld.
• Box 7 includes a distribution code. Code "7" usually indicates a normal distribution for someone over age 59½.

Form 5329

Again, you’ll only need this form if you missed an RMD. You use Form 5329 to calculate the excise tax penalty or to write a letter of explanation asking the IRS to waive the penalty.

Form 1040

On the standard tax return, IRA distributions go on specific lines (currently Line 4 for IRAs and Line 5 for pensions/annuities). You report the total distribution and the taxable amount separately.

How to Calculate Your RMD

The IRS provides specific life expectancy tables to determine your minimum withdrawal.

Most retirees use the Uniform Lifetime Table. This table assigns a "distribution period" (essentially a life expectancy factor) based on your age. 

To find your RMD, you take your account balance as of December 31 of the previous year and divide it by the distribution period for your current age.

Note that, as you get older, the distribution period gets smaller, which forces you to withdraw a larger percentage of your remaining balance each year.

Exception: The Joint Life and Last Survivor Table

If your spouse is the sole beneficiary of your IRA and is more than 10 years younger than you, you don't use the Uniform Lifetime Table. Instead, you use the Joint Life and Last Survivor Table, which provides a longer distribution period, resulting in smaller required withdrawals and less tax liability.

Qualified Charitable Distributions (QCDs)

If you don't actually need the RMD money for living expenses and want to avoid the tax hit, you can take advantage of the Qualified Charitable Distribution (QCD).

A QCD allows people age 70½ or older to send money directly from their IRA to a qualified charity. When it’s done correctly, the amount counts toward your Required Minimum Distribution but is not included in your taxable income.

This is better than a standard charitable deduction, largely because a standard deduction only helps if you itemize. A QCD lowers your AGI directly, which can help keep your Medicare premiums lower and reduce taxes on your Social Security benefits.

QCDs are generally only available from traditional IRAs, not 401(k)s, so if your money is in a 401(k), you would need to roll it over to an IRA first. The annual limit is indexed for inflation (it is $111,000 for 2026).

Crucially, the distribution must go directly to the charity. If the check is made out to you and you deposit it into your bank account, it counts as a taxable distribution, even if you write a check to the charity five minutes later.

For tax reporting, QCDs still appear on Form 1099-R as a normal distribution. On your Form 1040, you report the full amount, but indicate that it’s non-taxable by writing "QCD" next to the line item.

Pro Tip: Other RMD tax-reduction strategies include converting an IRA to a Roth and using Qualified Longevity Annuity Contracts (QLACs). The latter allows one to defer RMD taxation until age 85.

How This Fits Into Your Retirement Taxes

RMDs are a mandatory piece of your retirement tax puzzle, forming the "floor" of your taxable income. You can't go below your RMD unless you use strategies like QCDs. Once you understand this baseline, you can make smarter decisions about other income sources, like when to sell stocks or how much to withdraw from savings.

Most importantly, once you know how to manage these distributions correctly, you can keep the IRS off your back and protect your savings from unnecessary penalties. 

Mark your calendar for age 73, check your account balances every December 31, and talk to your custodian about setting up automatic withdrawals so you never miss a deadline. And if you want to know more about how to plan for taxation in retirement, be sure to check out our comprehensive guide.

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