RMD (Required Minimum Distribution).
In plain English
Required Minimum Distributions are mandatory annual withdrawals from Traditional IRAs, 401(k)s, 403(b)s, and most other tax-deferred retirement accounts. They begin at age 73 (rising to 75 in 2033 under the SECURE 2.0 Act). The amount each year is calculated using IRS life-expectancy tables divided into your account balance. Roth IRAs are exempt during the original owner's lifetime, no RMDs required. The penalty for missing an RMD is substantial: 25% of the amount you should have withdrawn (reduced to 10% if corrected promptly).
01Why it matters
RMDs are how the government eventually collects the tax it deferred when you contributed. They can push retirees into higher tax brackets unexpectedly, especially when combined with Social Security. People with large Traditional IRA or 401(k) balances often plan ahead by doing partial Roth conversions in lower-income early-retirement years, reducing the future RMD burden.
02The math, step by step
At age 73, your Traditional IRA holds $500,000. The IRS table divisor for age 73 is 26.5. Your first RMD = $500,000 ÷ 26.5 ≈ $18,868. You must withdraw at least that much by year-end and pay ordinary income tax on it. Each subsequent year, the divisor decreases (you'd typically withdraw a slightly higher percentage) and your account balance changes, so the RMD amount adjusts annually.
03What this is NOT
RMDs are a minimum, not a maximum. You can always take out more than the RMD. They're also not a tax-rate change, withdrawals are taxed as ordinary income whether they're RMDs or voluntary. The 'requirement' is just the floor; the IRS doesn't want retirement accounts to compound tax-deferred forever.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice