Guide to Required Minimum Distributions After 73

A missed required minimum distribution can create an avoidable tax problem just when retirement should feel more settled. This guide to required minimum distributions explains what you need to take, when you need to take it, and how that withdrawal fits into the larger picture of dependable income, tax exposure, and family planning.

What required minimum distributions are

Required minimum distributions, commonly called RMDs, are the minimum amounts the IRS requires you to withdraw each year from certain tax-deferred retirement accounts after reaching a specified age. The funds in a traditional IRA, 401(k), 403(b), TSP, SEP IRA, SIMPLE IRA, and similar accounts generally received tax-deferred treatment while you were working. RMD rules are the government’s way of eventually collecting income tax on that money.

An RMD is not a recommendation for how much income you should spend. It is a tax requirement. You may take more than the required amount if your retirement-income plan calls for it, but you cannot simply leave the required amount in the account indefinitely.

For many retirees, the real planning question is not just, “What is my RMD?” It is, “How can I take it in a way that supports my lifestyle, preserves as much of my savings as possible, and avoids unnecessary tax surprises?”

When do RMDs begin?

Your starting age depends on your year of birth. Under current law, people born from 1951 through 1959 generally begin RMDs at age 73. Those born in 1960 or later generally begin at age 75. If you were born in 1950 or earlier, earlier RMD ages may apply.

Your first RMD has a special deadline. You can take it during the year you reach your applicable RMD age, or delay that first withdrawal until April 1 of the following year. After that, each annual RMD is due by December 31.

Delaying the first withdrawal may sound convenient, but it can produce two taxable distributions in one calendar year: the delayed first RMD and the next year’s RMD. That larger income total may push more of your Social Security benefits into taxation, raise your Medicare premium brackets, or move you into a higher tax bracket. The better choice depends on your full tax picture, not simply on the later deadline.

Accounts that do and do not require lifetime RMDs

Traditional retirement accounts are generally subject to RMDs. Roth IRAs are different: the original owner does not have lifetime RMDs from a Roth IRA. Designated Roth accounts in workplace plans, such as Roth 401(k)s, also no longer have lifetime RMDs for the original owner.

That distinction is one reason Roth conversion planning can be valuable before RMDs begin. A conversion creates taxable income in the year of the conversion, so it is not automatically the right move. But for households with years of lower taxable income between retirement and RMD age, paying tax strategically may reduce future forced withdrawals and provide more flexibility later.

How your RMD is calculated

The calculation starts with the value of your retirement account on December 31 of the prior year. That balance is divided by a life-expectancy factor from IRS tables. In most cases, retirees use the Uniform Lifetime Table.

For example, assume your prior year-end traditional IRA balance is $500,000 and the applicable life-expectancy factor is 24.7. Your estimated RMD would be about $20,243. The precise factor changes as you age, and the calculation should be checked every year.

There is a separate table for someone whose spouse is more than 10 years younger and is the sole primary beneficiary of the account. This can lower the required withdrawal because the distribution is based on a longer joint life expectancy.

Market performance can change the next year’s RMD. A strong market year may raise the account balance used in the calculation, while a downturn may lower it. Even so, an RMD is based on the prior December 31 balance, not on what happens in the account during the current year. That timing can be painful when markets decline after a high year-end balance, which is one reason retirement distributions should be coordinated with a plan for liquidity and principal protection.

The account rules that often cause mistakes

If you own multiple traditional IRAs, you may calculate each RMD separately and then take the combined total from one or more of your traditional IRAs. The same aggregation approach generally applies to multiple 403(b) accounts.

Workplace plans follow a different rule. RMDs for 401(k), 457(b), TSP, and most other employer-sponsored plans generally must be taken separately from each plan. You cannot satisfy a 401(k) RMD by taking extra money from an IRA.

Some people can delay RMDs from their current employer’s workplace plan until retirement if they are still working beyond their RMD age. That exception generally does not apply to IRAs, former employer plans, or a current employer plan when you own more than 5% of the company. Plan documents can also matter, so do not assume every workplace plan handles the rule the same way.

Taxes matter as much as the withdrawal itself

Most RMDs from traditional retirement accounts are taxed as ordinary income. The distribution can affect far more than your federal income tax bill. It may influence state taxes, Social Security taxation, Medicare Income-Related Monthly Adjustment Amounts, and how much remains available for your spouse or heirs.

You can usually elect federal and, where applicable, state tax withholding from the distribution. That may prevent an unpleasant balance due at tax time. But withholding is only a payment method. It does not reduce the taxable income created by the RMD.

A qualified charitable distribution, or QCD, may be worth discussing if charitable giving is already part of your plan. Eligible IRA owners who are age 70 1/2 or older can direct funds from an IRA to qualifying charities, up to the annually indexed limit. A properly handled QCD can count toward an RMD while generally staying out of adjusted gross income. It is a useful tool for the right charitable household, but it should be completed correctly and documented carefully.

Inherited accounts need a separate review

Inherited IRAs and inherited workplace accounts have their own rules, and the details can change based on who inherited the account, when the original owner died, and whether that owner had begun RMDs.

Many non-spouse beneficiaries must empty an inherited account by the end of the 10th year after the original owner’s death. In some cases, annual distributions are also required during those 10 years. Surviving spouses often have more options, including treating an inherited IRA as their own in appropriate circumstances. Minor children, disabled or chronically ill beneficiaries, and beneficiaries who are not more than 10 years younger than the account owner may qualify for different treatment.

These rules are not a good place for guesswork. An inherited account can affect a family’s taxes and long-term financial security, particularly when beneficiaries are still working and already in higher tax brackets.

A practical approach before each deadline

An RMD should be part of an annual retirement review, not a last-minute December task. Start by confirming every account subject to RMDs and reviewing the prior year-end values. Verify beneficiaries, calculate the required amount, and decide which account or accounts will provide the distribution.

Then look at the withdrawal alongside the rest of your income. Consider Social Security, pensions, annuity income, cash reserves, investment withdrawals, charitable goals, and anticipated large expenses. If you need the RMD for living expenses, the distribution may simply become part of your income plan. If you do not need it, you still have choices about how to use the after-tax proceeds, such as rebuilding cash reserves, supporting family goals, investing according to your risk tolerance, or making charitable gifts.

The penalty for missing an RMD can be substantial. The excise tax is generally 25% of the amount not withdrawn, though it may be reduced to 10% when the error is corrected within the applicable correction period. Prompt action and careful documentation matter if a mistake occurs.

At Gulf Coast Financial Group, we first listen to the concerns behind the numbers: whether your income will last, how much tax you may owe, and what you hope to leave for the people you love. A coordinated review can save many thousands of dollars over the course of your retirement, making this one of the most important planning steps to understand prior to retirement.

Your RMD deadline will arrive whether markets are calm or unsettled. Planning for it early gives you more control over the income you keep, the taxes you manage, and the confidence you carry into the years ahead.