Required Minimum Distributions - Financial Wellness

What are required minimum distributions (RMDs)?

Required minimum distributions, often referred to as RMDs or minimum required distributions, are amounts that the federal government requires you to withdraw annually from traditional IRAs and work-based retirement plans after you reach age 73 (75 for those who reach age 73 after December 31, 2032; prior to December 31, 2022, the age was either 72 or 70½, depending on your year of birth). You can always withdraw more than the minimum amount from your IRA or plan in any year, but if you withdraw less than the required minimum, you will be subject to a federal penalty.

The RMD rules are designed to spread out the distribution of your entire interest in an IRA or plan account over your lifetime. The purpose of the RMD rules is to ensure that people don’t just accumulate retirement accounts, defer taxation, and leave these retirement funds as an inheritance. Instead, required minimum distributions generally have the effect of producing taxable income during your lifetime.

Which retirement savings vehicles are subject to the RMD rules?

In addition to traditional IRAs, simplified employee pension (SEP) IRAs and SIMPLE IRAs are subject to the RMD rules. Roth IRAs, however, are not subject to these rules while you are alive. Although you are not required to take any distributions from your Roth IRAs during your lifetime, your beneficiary will generally be required to take distributions from the Roth IRA after your death.

Work-based retirement plans that are subject to the RMD rules include qualified pension plans, qualified stock bonus plans, and qualified profit-sharing plans, including 401(k) plans. Section 457(b) plans and Section 403(b) plans are also subject to these rules. If you are uncertain whether the RMD rules apply to your work-based plan, you should consult your plan administrator or a tax professional.

When must RMDs be taken?

Your first required distribution from an IRA or retirement plan is for the year you reach age 73 (75 for those who reach age 73 after December 31, 2032). However, you have some flexibility as to when you actually have to take this first-year distribution. You can take it during the year you reach age 73, or you can delay it until April 1 of the following year.

Since this first distribution generally must be taken no later than April 1 following the year you reach age 73, this April 1 date is known as your required beginning date. Required distributions for subsequent years must be taken no later than December 31 of each calendar year until you die or your balance is reduced to zero. This means that if you opt to delay your first distribution until April 1 of the following year, you will be required to take two distributions during that year — your first year’s required distribution and your second year’s required distribution.

You have a traditional IRA. Your 73rd birthday is December 2, 2026. You can take your first RMD during 2026, or you can delay it until April 1, 2027. If you choose to delay your first distribution until 2027, you will have to take two required distributions during 2027 — one for 2026 and one for 2027. This is because your required distribution for 2027 cannot be delayed until the following year.

There is one situation in which your required beginning date can be later than described above. If you continue working past age 73 and are still participating in your employer’s retirement plan, your required beginning date under the plan of your current employer can be as late as April 1 following the calendar year in which you retire (if the retirement plan allows this and you own 5% or less of the company). Again, subsequent distributions must be taken no later than December 31 of each calendar year.

You own more than 5% of your employer’s company and you are still working at the company. Your 73rd birthday is on December 2, 2026. You must take your first RMD from your current employer’s plan by April 1, 2027 — even if you’re still working for the company at that time.

You participate in two plans — one with your current employer and one with your former employer. You own less than 5% of each company. Your 73rd birthday is on December 2, 2026, but you’ll keep working until you turn 74 on December 2, 2027. You can delay your first RMD from your current employer’s plan until April 1, 2028 — the April 1 following the calendar year in which you retire. However, as to your former employer’s plan, you must take your first distribution (for 2026) no later than April 1, 2027 — the April 1 after reaching age 73.

How are RMDs calculated?

RMDs are calculated by dividing your traditional IRA or retirement plan account balance by a life expectancy factor specified in IRS tables. Your account balance is usually calculated as of December 31 of the year preceding the calendar year for which the distribution is required to be made.

You have a traditional IRA. Your 73rd birthday is November 1, 2026, so you must take an RMD for 2026. This distribution (your first RMD) must be taken no later than April 1, 2027. In calculating this RMD, you must use the total value of your IRA as of December 31, 2025.

When calculating the RMD amount for your second distribution year, you base the calculation on the IRA or plan balance as of December 31 of the first distribution year (the year you reached age 73) regardless of whether or not you waited until April 1 of the following year to take your first required distribution.

For most taxpayers, calculating RMDs is straightforward. For each calendar year, simply divide your account balance as of December 31 of the prior year by your distribution period, determined under the Uniform Lifetime Table using your attained age in that calendar year. This life expectancy table is based on the assumption that you have designated a beneficiary who is exactly 10 years younger than you are. Every IRA owner’s and plan participant’s calculation is based on the same assumption.

There is one exception to the procedure described above. If your sole designated beneficiary is your spouse, and he or she is more than 10 years younger than you, the calculation of your RMDs may be based on the longer joint and survivor life expectancy of you and your spouse. (These life expectancy factors can be found in IRS Publication 590.) Consequently, if your spouse is your designated beneficiary and is more than 10 years younger than you, you can take your RMDs over a longer payout period than under the Uniform Lifetime Table. If your beneficiary is a nonspouse or a spouse who is not more than 10 years younger than you, you are subject to the shorter payout period under the simplified general rule.

In order for the younger spouse rule to apply, your spouse must be your sole beneficiary for the entire distribution year. The final regulations specify that your spouse will be considered your sole beneficiary for the entire year if he or she is your sole beneficiary on January 1 of the year, and you do not change your beneficiary during the year. In other words, even if your spouse dies, or you get divorced after January 1, you can use the younger spouse rule for that distribution year (but not for distribution years that follow). In the case of divorce, however, if you designate a new beneficiary prior to the end of the distribution year, you cannot use the younger spouse rule (since your former spouse will not be considered your sole beneficiary for the entire year).

If you have multiple IRAs, an RMD is calculated separately for each IRA. However, you can withdraw the required amount from any one or more IRAs. Inherited IRAs are not included with your own for this purpose. [Similar rules apply to Section 403(b) accounts.] If you participate in more than one employer retirement plan, your RMD is calculated separately for each plan and must be paid from that plan.

Should you delay your first RMD?

Your first decision is when to take your first RMD. Remember, you have the option of delaying your first distribution until April 1 following the calendar year in which you reach age 73 (or April 1 following the calendar year in which you retire, in some cases).

You might delay taking your first distribution if you expect to be in a lower income tax bracket in the following year, perhaps because you’re no longer working or will have less income from other sources. However, if you wait until the following year to take your first distribution, your second distribution must be made on or by December 31 of that same year.

Receiving your first and second RMDs in the same year may not be in your best interest. Since this “double” distribution will increase your taxable income for the year, it will probably cause you to pay more in federal and state income taxes. It could even push you into a higher federal income tax bracket for the year. In addition, the increased income may cause you to lose the benefit of certain tax exemptions and deductions that might otherwise be available to you. So the decision of whether to delay your first required distribution can be important, and should be based on your personal tax situation.

What if you fail to take RMDs as required?

You can always withdraw more than you are required to from your IRAs and retirement plans. However, if you fail to take at least the RMD for any year (or if you take it too late), you will be subject to a federal penalty. The penalty is a 25% excise tax on the amount by which the RMD exceeds the distributions actually made to you during the taxable year.

You own one traditional IRA and compute your RMD for year one to be $7,000. You take only $2,000 as a year-one distribution from the IRA by the date required. Since you are required to take at least $7,000 as a distribution but have only taken $2,000, your RMD exceeds the amount of your actual distribution by $5,000 ($7,000 minus $2,000). You are therefore subject to an excise tax of $1,250 (25% of $5,000).

You report and pay the 25% tax on your federal income tax return for the calendar year in which the distribution shortfall occurs. You should complete and attach IRS Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.” The tax can be waived if you can demonstrate that your failure to take adequate distributions was due to “reasonable error” and that steps have been taken to correct the insufficient distribution. You must file Form 5329 with your individual income tax return, and attach a letter of explanation. The IRS will review the information you provide and decide whether to grant your request for a waiver.

The SECURE 2.0 Act of 2022 established a two-year period to correct a failure to take a timely RMD, with a resulting reduction in the tax penalty to 10%.

Can you satisfy the RMD rules with the purchase of an annuity contract?

Your purchase of an annuity contract with the funds in your IRA or retirement plan satisfies the RMD rules if all of the following are true:

Payments are made at least yearly

The annuity is purchased on or before the date that distributions are required to begin

The annuity is calculated and paid over a time period that does not exceed those permitted under the RMD rules

Payments, with certain exceptions, are nonincreasing

You may also be able to use up to $210,000 of your non-Roth IRA and retirement plan account balances to purchase a qualifying longevity annuity contract (or QLAC). The value of the QLAC is disregarded when you calculate the amount of RMDs you are otherwise required to take from your account each year. Payments from the QLAC can be delayed up to age 85, and are treated as satisfying the RMD rules when paid. The rules can be complicated, and QLACs are not right for everyone, so be sure to consult a qualified professional for further information. (Note: Any annuity guarantees are subject to the claims-paying ability and financial strength of the annuity issuer.)

Tax considerations

Income tax

Like all distributions from traditional IRAs and retirement plans, RMDs are generally subject to federal (and possibly state) income tax for the year in which you receive the distribution. However, a portion of the funds distributed to you may not be subject to tax if you have ever made after-tax contributions to your IRA or plan.

For example, if some of your traditional IRA contributions were not tax deductible, those contribution amounts will be income tax free when you withdraw them from the IRA. This is simply because those dollars were already taxed once. You should consult a tax professional if your IRA or plan contains any after-tax contributions. [Special tax rules apply to Roth IRAs and Roth 401(k)/403(b) contributions.]

Taxable income from an IRA or retirement plan is taxed at ordinary income tax rates even if the funds represent long-term capital gains or qualifying dividends from stock held within the plan. There are special rules for capital gains treatment in some cases on distributions from retirement plans.

Gift and estate tax

You first need to determine whether or not the federal gift and estate tax will apply to you. If you do not expect the value of your taxable estate to exceed the applicable exclusion amount, then federal gift and estate tax may not be a concern for you. However, state death (or inheritance) tax may be a concern. In some cases, your assets may be subject to more than one type of transfer tax — for example, the generation-skipping transfer tax may also apply. Consider getting professional advice to establish appropriate strategies to minimize your future gift and estate tax liability.

For example, you might reduce the value of your estate by gifting all or part of your required distribution to your spouse or others. Making gifts to your spouse can sometimes work well if your estate is larger than your spouse’s, and one or both of you will leave an estate larger than the applicable exclusion amount. This strategy can provide your spouse with additional assets to better utilize his or her applicable exclusion amount, thereby minimizing the combined gift and estate tax liabilities of you and your spouse. Be sure to consult an estate planning attorney, however, about this and other possible strategies.

In addition to federal gift and estate tax, your state may impose its own estate or death tax (or other transfer taxes). Consult an estate planning attorney for details.

Inherited IRAs and retirement plans

Your RMDs from your IRA or plan will cease after your death, but your designated beneficiary (or beneficiaries) will then typically be required to take distributions from the account. A spouse beneficiary may generally roll over an inherited IRA or plan account into an IRA in the spouse’s own name, allowing the spouse to delay taking additional required distributions until he or she turns age 73. Rules for non-spouse beneficiaries depend on whether the beneficiary is an individual (versus a trust or estate), as well as the age and relationship of the individual to the beneficiary. For details, see IRS Publication 590-B.

As with required lifetime distributions, proper planning for required post-death distributions is essential. You should consult an estate planning attorney and/or a tax professional.

Deciding When to Retire: When Timing Becomes Critical

Deciding when to retire may not be one decision but a series of decisions and calculations. For example, you’ll need to estimate not only your anticipated expenses but also what sources of retirement income you’ll have and how long you’ll need your retirement savings to last. You’ll need to take into account your life expectancy and health as well as when you want to start receiving Social Security or pension benefits, and when you’ll start to tap your retirement savings. Each of these factors may affect the others as part of an overall retirement income plan.

Thinking about early retirement?

Retiring early means fewer earning years and less accumulated savings. Also, the earlier you retire, the more years you’ll need your retirement savings to produce income. And your retirement could last quite a while. According to a National Vital Statistics Report, people today can expect to live more than 30 years longer than they did a century ago.

Not only will you need your retirement savings to last longer, but inflation will have more time to eat away at your purchasing power. If inflation is 3% a year it will cut the purchasing power of a fixed annual income in half in roughly 23 years. Factoring inflation into the retirement equation, you’ll probably need your retirement income to increase each year just to cover the same expenses. Be sure to take this into account when considering how long you expect (or can afford) to be in retirement.

Current Life Expectancy Estimates
	Men	Women
At birth	76.5	81.4
At age 65	83.4	85.8

Source: National Center for Health Statistics, January 2026

There are other considerations as well. For example, if you expect to receive pension payments, early retirement may adversely affect them. Why? Because the greatest accrual of benefits generally occurs during your final years of employment, when your earning power is presumably highest. Early retirement could reduce your monthly pension benefits.

Also, don’t forget that if you hope to retire before you turn 59½ and plan to start using your 401(k) or IRA savings right away, you’ll generally pay a 10% early-withdrawal penalty plus any regular income tax due [with some exceptions, including disability payments and distributions from employer plans such as 401(k)s after you reach age 55 and terminate employment].

Retiring early might also impact your Social Security benefits. If you decide to start receiving payments at age 62, they will be substantially lower than if you waited until your full retirement age. Contact the Social Security Administration for more information.

Finally, you’re not eligible for Medicare until you turn 65. Unless you’ll be eligible for retiree health benefits through your employer or take a job that offers health insurance, you’ll need to calculate the cost of paying for insurance or health care out-of-pocket, at least until you can receive Medicare coverage.

Delaying retirement

Postponing retirement lets you continue to add to your retirement savings. That’s especially advantageous if you’re saving in tax-deferred accounts and if you’re receiving employer contributions. For example, if you retire at age 65 instead of age 55 and manage to save an additional $20,000 per year at an 8% rate of return during that time, you can add an extra $312,909 to your retirement fund. (This is a hypothetical example and is not intended to reflect the actual performance of any specific investment.)

Even if you’re no longer adding to your retirement savings, delaying retirement postpones the date that you’ll need to start withdrawing from them. That could enhance your nest egg’s ability to last throughout your lifetime.

Postponing full retirement also gives you more transition time. If you hope to trade a full-time job for running your own small business or launching a new career after you “retire,” you might be able to lay the groundwork for a new life by taking classes at night or trying out your new role part-time. Testing your plans while you’re still employed can help you anticipate the challenges of your post-retirement role. Doing a reality check before relying on a new endeavor for retirement income can help you see how much income you can realistically expect from it. Also, you’ll learn whether it’s something you really want to do before you spend what might be a significant portion of your retirement savings on it.

Phased retirement: the best of both worlds

Some employers have begun to offer phased retirement programs, which allow you to receive all or part of your pension benefit once you’ve reached retirement age while you continue to work part-time for the same employer.

Phased retirement programs are getting more attention as the baby boomer generation ages. In the past, pension law for private-sector employers encouraged workers to retire early. Traditional pension plans generally weren’t allowed to pay benefits until an employee either stopped working completely or reached the plan’s normal retirement age (typically age 65). This frequently encouraged employees who wanted a reduced workload but hadn’t yet reached normal retirement age to take early retirement and go to work elsewhere (often for a competitor), allowing them to collect both a pension from the prior employer and a salary from the new employer.

However, pension plans now are allowed to pay benefits when an employee reaches age 62, even if the employee is still working and hasn’t yet reached the plan’s normal retirement age. Phased retirement can benefit both prospective retirees, who can enjoy a more flexible work schedule and a smoother transition into full retirement, and employers, who are able to retain an experienced worker. If your employer offers a phased retirement plan, it’s worth at least a review to see how it might affect your plans.

Retirement: a state of mind

Don’t underestimate the psychological issues involved in deciding when to retire. Many people welcome the opportunity to reinvent themselves. Others postpone retirement or return to some form of work so they can continue to feel connected and productive. You’ll also need to shift your mental focus from accumulating savings to investing for income and managing income streams from various sources.

Key Decision Points
	Age	Don’t forget …
Eligible to tap tax-deferred savings without penalty for early withdrawal	59½*	Federal income taxes will be due on pre-tax contributions and earnings
Eligible for early Social Security benefits	62	Taking benefits before full retirement age reduces each monthly payment
Eligible for Medicare	65	Contact Medicare three months before your 65th birthday
Full retirement age for Social Security	66 to 67, depending on when you were born	After full retirement age, earned income no longer affects Social Security benefits

*Age 55 for distributions from employer plans upon termination of employment

Check your assumptions

The sooner you start to plan the timing of your retirement, the more time you’ll have to make adjustments that can help ensure those years are everything you hope for. If you’ve already made some tentative assumptions or choices, you may need to revisit them, especially if you’re considering taking retirement in stages. And as you move into retirement, you’ll want to monitor your retirement income plan to ensure that your initial assumptions are still valid, that new laws and regulations haven’t affected your situation, and that your savings and investments are performing as you need them to.

This content has been reviewed by FINRA.