For most of your working life, the goal with your retirement accounts was simple: put in as much as possible and leave it alone.

The IRS, it turns out, has other plans.

Once you reach a certain age, the government requires you to start taking money out of your tax-deferred retirement accounts every year whether you need the income or not. These mandatory withdrawals are called Required Minimum Distributions, or RMDs, and for retirees who aren’t prepared for them, they can arrive as an unwelcome and expensive surprise.

The good news is that RMDs are entirely plannable. Understanding how they work well before they begin is one of the most valuable things you can do for your retirement tax picture.

Why RMDs Exist

The money sitting in your traditional IRA or 401(k) has never been taxed. You contributed it pre-tax, it grew tax-deferred, and the IRS has been patiently waiting to collect its share.

RMDs are how the IRS ensures that patience has a limit. Rather than allowing retirees to leave tax-deferred money untouched indefinitely, the government requires withdrawals to begin at a specific age so that the deferred taxes eventually get paid.

It is worth noting that Roth IRAs are not subject to RMDs during the account owner’s lifetime, which is one of the reasons Roth accounts are such a valuable planning tool for retirees.

When Do RMDs Begin?

Under current law, RMDs begin at age 73 for most people. This age has shifted over the years as legislation has changed, so if you heard a different number in the past, that may explain the discrepancy.

The first RMD can be delayed until April 1st of the year after you turn 73. However, delaying means taking two distributions in one year, which can push you into a higher tax bracket. For most people, starting on time rather than delaying is the simpler and often smarter move.

After the first year, RMDs must be taken by December 31st each year without exception.

How Is the RMD Amount Calculated?

Your RMD is calculated by dividing the prior year-end balance of your retirement account by a life expectancy factor provided by the IRS. As you age, that factor decreases, which means the percentage you’re required to withdraw increases over time.

The calculation itself is straightforward. What surprises people is the dollar amount that results, particularly if their accounts have grown significantly over the years. A large IRA balance can produce a substantial RMD, and that withdrawal is taxable as ordinary income in the year it is taken.

The Tax Surprise Nobody Saw Coming

This is where RMDs tend to catch people off guard.

Many retirees spend their early retirement years managing their income carefully, staying in a comfortable tax bracket, and feeling good about where things stand. Then RMDs begin, and the picture changes.

A large mandatory withdrawal can push you into a higher federal tax bracket. It can cause more of your Social Security benefit to become taxable. It can trigger IRMAA surcharges that increase your Medicare premiums. And if you have multiple retirement accounts, the combined RMD across all of them can be significant.

None of these are inevitable. But avoiding it requires planning that starts before the RMDs do.

The Penalty for Missing an RMD

It is worth knowing that failing to take your full RMD in any given year carries a significant penalty. The IRS charges an excise tax on the amount that should have been withdrawn but wasn’t. This is one deadline you do not want to miss.

Start the Conversation Early

RMDs are one of those topics where the earlier you understand them, the more options you have. By the time the first withdrawal is required, many of the most effective planning strategies are no longer available.

If you haven’t had a specific conversation about your future RMD picture, that conversation may be worth having. A few smart decisions made today can make a meaningful difference in how much of your retirement savings you actually get to keep.

Want to understand what RMDs could mean for your specific situation? Schedule a complimentary first visit with the team at True Financial Partners and let’s look at the full picture together.

Summary:
Required Minimum Distributions are one of those retirement topics that feel distant until they’re suddenly urgent. If you have a traditional IRA or 401(k), the IRS will eventually require you to start withdrawing from it whether you need the money or not. This post explains what RMDs are, when they kick in, and what you can do now to reduce their impact later.

Frequently Asked Questions

What is a Required Minimum Distribution?
It is a mandatory annual withdrawal from tax-deferred retirement accounts like traditional IRAs and 401(k)s. The IRS requires these withdrawals so that deferred taxes are eventually paid.

When do RMDs start?
For most people, RMDs begin at age 73 under current law. The rules have changed over the years, so it is worth confirming your specific start date with a financial advisor.

How is my RMD amount calculated?
Your prior year-end account balance is divided by an IRS life expectancy factor. The percentage you must withdraw increases as you age.

What happens if I don’t take my RMD?
The IRS charges an excise tax on any amount that should have been withdrawn but wasn’t. It is a significant penalty and one of the more important deadlines in retirement planning.

Do Roth IRAs have RMDs?
No. Roth IRAs are not subject to RMDs during the account owner’s lifetime, which makes them a valuable tool for managing future tax obligations in retirement.