RMD
RMD is the minimum amount that must be withdrawn from tax-deferred retirement accounts (Traditional IRA, 401(k), 403(b)) each year starting at age 73, calculated using the IRS Uniform Lifetime Table. The age increases to 75 starting in 2033 under the SECURE Act 2.0.
RMDs ensure tax-deferred retirement accounts eventually distribute taxable income rather than deferring tax indefinitely. The RMD is calculated as the prior-year-end account balance divided by a life-expectancy divisor from the IRS Uniform Lifetime Table. For age 73, the divisor is approximately 26.5; for age 80, approximately 20.2; for age 90, approximately 12.2.
Failure to take an RMD historically incurred a 50% excise tax on the under-distributed amount — among the harshest penalties in the tax code. The SECURE Act 2.0 reduced this to 25%, with a further reduction to 10% if corrected within a window. Beyond the penalty, the RMD itself is ordinary income — for retirees in higher brackets, the RMD-driven income spike pushes them into higher IRMAA tiers and can affect Social Security taxation.
The RMD applies to most tax-deferred accounts but not Roth IRAs (during the original owner's lifetime). The SECURE Act eliminated the RMD requirement for Roth 401(k) accounts starting in 2024, aligning them with Roth IRAs. Inherited retirement accounts have their own RMD rules — the SECURE Act's 10-year rule generally requires non-spouse beneficiaries to fully distribute the account within 10 years, with annual RMDs required during the 10-year period for accounts where the original owner had already started RMDs.
RMD = balance_prior_year_end / life_expectancy_divisor- balance_prior_year_end
- = December 31 balance of the previous calendar year
- life_expectancy_divisor
- = from IRS Uniform Lifetime Table (decreases with age)
Age 75, prior-year-end balance $500,000. Divisor 24.6. RMD = $500,000 / 24.6 = $20,325. Same balance at age 85: divisor 16.0, RMD = $31,250 — increasing with age.Synthetic households at or near RMD age should track per-account RMD obligations: prior-year-end balance, life-expectancy divisor, computed RMD, year-to-date distributions toward RMD. Aggregation rules per RMD Aggregation glossary entry must be respected. Failed-RMD scenarios should produce 25% excise tax (or 10% with prompt correction).
Common pitfalls
- Computing RMD on current-year balance instead of prior-year-end — wrong; the IRS table uses prior-year-end balance.
- Cross-aggregating 401(k) and IRA RMDs — they're separate aggregation pools (per RMD Aggregation rules).
- Forgetting that QCDs satisfy RMD without raising MAGI — under-utilized planning lever for IRMAA-tier-sensitive retirees.
- Triggering an IRMAA tier increase via RMD — the 2-year MAGI lookback means the impact appears 2 years later.
Examples
Retiree age 75, married. Traditional IRAs $800K (across 2 accounts), Traditional 401(k) $400K, Roth IRA $300K. Prior-year-end balances: same. RMD calculation: IRA pool $800K/24.6 = $32,500; 401(k) $400K/24.6 = $16,260 (separate pool, not aggregable). Roth IRA: no RMD for original owner. Retiree directs $25,000 of the IRA RMD to a QCD; remaining $7,500 + full $16,260 401(k) RMD as cash. MAGI suppressed by the $25K QCD; potential IRMAA tier savings.