How Required Minimum Distributions (RMDs) Impact Your IRA

20 July 2026

If you've been diligently saving for retirement through an IRA, your golden years might look pretty relaxing — and they should. But here’s the thing: Uncle Sam hasn’t forgotten about that money. Once you hit a certain age, the IRS wants its slice of the tax pie. That’s where Required Minimum Distributions, or RMDs, come into play.

Not sure what RMDs are or how they affect your IRA? You’re not alone. Let’s break it down in simple terms so you can plan ahead and avoid some common (and expensive) pitfalls.

What Are RMDs, Anyway?

Think of RMDs as your retirement money’s graduation day. You’ve been growing that money tax-deferred, and now the IRS says it’s time to start withdrawing a minimum amount each year — and yes, pay taxes on it.

RMDs apply to many retirement accounts, including:

- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- Employer-sponsored plans like 401(k)s

Roth IRAs? You're off the hook for RMDs during your lifetime. More on that later.

When Do RMDs Start?

You used to have to start RMDs at age 70½, but that’s old news. Thanks to the SECURE Act and its updated version (SECURE 2.0), you now need to start these withdrawals at age 73 (if you were born between 1951 and 1959). For younger folks (born in 1960 or later), the starting age is bumped to 75.

That gives you a little more breathing room to keep your money growing. But once that RMD clock starts ticking, there’s no pausing it — miss a withdrawal, and you'll get slapped with a hefty penalty.

How Are RMDs Calculated?

Here’s where it gets a bit math-y but stick with me. Each year, the IRS provides a Uniform Lifetime Table — basically, a chart that estimates how long you’ll live based on your age. Your RMD is calculated like this:

> RMD = Account Balance (as of Dec 31 of the previous year) ÷ Distribution Period (from IRS table)

So, say you have $500,000 in your IRA and the IRS factor for your age is 24.6. Your RMD? About $20,325.

Important: Each IRA needs its OWN RMD calculated, but you can withdraw the total from any one Traditional IRA if you prefer. (Employer plans are different — you gotta take RMDs separately.)

Why Do RMDs Exist?

Short answer? Taxes.

When you contribute to a Traditional IRA, you often get a tax break upfront. That money grows tax-deferred for years, even decades. Eventually, the IRS taps you on the shoulder and says, “It's time. We want our cut.”

RMDs force you to draw from these accounts so that the government can collect income taxes on the distributions. Makes sense from a tax policy angle, right?

What Happens If You Skip or Underpay Your RMD?

Not to scare you, but this is serious business.

If you don’t take your full RMD, the IRS used to hit you with a 50% excise tax on the amount you should have withdrawn. Yikes.

Thanks to the SECURE 2.0 Act, that penalty's been reduced to 25%, and maybe even down to 10% if you correct the issue in time. Still, why take a chance?

There are no do-overs. Missing your RMD not only burns your wallet but can mess up your retirement income plan.

How RMDs Impact Your Taxes

Here’s where it gets real.

Every dollar you pull from a Traditional IRA as an RMD counts as ordinary income. That means it could:

- Push you into a higher tax bracket
- Increase your Medicare premiums (watch out for IRMAA!)
- Affect your Social Security taxation

So yeah, how and when you take your RMD can ripple through your entire tax life. Timing and strategy matter.

Can You Reduce or Avoid RMDs?

You can't completely dodge RMDs once they begin, but there are smart moves you can make before and during retirement to cut their tax bite:

1. Roth Conversions

Convert some of your Traditional IRA funds to a Roth IRA before RMD age. You’ll pay taxes now, but the money grows tax-free and, bonus — no RMDs.

Think of this like paying admission early to skip the long line later.

2. Qualified Charitable Distributions (QCDs)

After age 70½, you can give up to $100,000 per year directly from your IRA to a qualified charity — and it counts toward your RMD! Plus, it doesn’t get reported as taxable income.

That’s a win-win — you support a good cause and lower your tax bill.

3. Delay Retirement Account Contributions

If you're still working and have access to a Roth 401(k) or Roth IRA, consider prioritizing those instead of Traditional IRAs. Less money in RMD-targeted accounts means smaller future RMDs.

Strategic RMD Planning Tips

Planning your RMDs shouldn’t be a last-minute tax season scramble. Here are some tried-and-true pointers:

Spread It Out Monthly

Rather than one big lump sum in December, consider monthly withdrawals. It can smooth your cash flow and minimize the impact on your tax return.

Use RMDs as Income

If you need the money anyway, great! Use RMDs as part of your regular retirement income plan — no sense letting it sit in a low-interest savings account.

Balance With Other Income

Coordinate your RMDs with other income sources — like Social Security benefits or pensions — to stay in a lower tax bracket.

Work With a Tax Pro

RMDs and taxes go hand-in-hand. A good tax advisor can help you dodge hidden tax traps and optimize your withdrawals.

What If You Inherited an IRA?

Inherited IRAs come with their own RMD rules, and they got a shake-up under the SECURE Act.

If you inherited an IRA from someone who passed away in 2020 or later (and you’re not their spouse), chances are you now have to empty that account within 10 years. No more lifetime stretch.

Some beneficiaries still have to take annual RMDs during that 10-year window. Confusing? You bet. That’s why professional guidance is key.

Common RMD Mistakes (And How to Avoid Them)

We’ve all been there — overwhelmed, forgetful, or just plain confused. Let’s look at a few mistakes folks make with RMDs:

❌ Waiting Too Long

Don’t wait until December 31st to calculate your RMD — especially if you have multiple accounts.

❌ Forgetting About Old 401(k)s

Got a dusty 401(k) from a job 15 years ago? Yep, that’s RMD-eligible too. Consolidating can help.

❌ Taking Too Much Out

Remember, it’s a Required Minimum Distribution — not a ceiling. You can take more, but it could bump your tax bill up unnecessarily.

✅ Tip: Automate It!

Many custodians will calculate and distribute your RMD for you. Set it, forget it, and avoid the penalty stress.

What About Roth IRAs?

Let’s end on a high note.

Roth IRAs do not have RMDs during your lifetime. That makes them an awesome estate planning tool — you can leave your Roth IRA to your heirs, and they’ll likely have to follow the 10-year rule, but the distributions will be tax-free.

So, if you don’t need the income, consider holding your Roth IRA investments as long as possible.

Final Thoughts

RMDs are one of those “good news, bad news” situations. The good news? You’ve built a solid nest egg. The bad news? The IRS wants in on the action.

But if you play your cards right — with smart planning, Roth strategies, and perhaps some charitable giving — you can minimize the impact and keep your retirement income plan on track.

Bottom line: Don’t ignore RMDs. Embrace them, plan for them, and use them to your advantage. After all, retirement is supposed to be your time. Make sure your money works for you — not the other way around.