Required Minimum Distribution (RMD)

What Is a Required Minimum Distribution (RMD)?

A required minimum distribution is a yearly withdrawal that U.S. federal tax rules require from many tax-deferred retirement accounts, such as traditional individual retirement account (IRA) and 401(k) plan balances. These accounts received tax deferral on contributions and investment growth, and the RMD rule ensures that the money is eventually taxed. Roth IRAs are generally exempt from RMDs during the original owner's lifetime.

How It Is Calculated

The amount is found by dividing the account's balance at the end of the previous year by a life expectancy factor from IRS tables.

RMD = Prior year-end account balance ÷ Life expectancy factor

The factor shrinks as the owner ages, so the required percentage of the balance rises over time. Owners with several traditional IRAs calculate the amount for each account, though the total can be withdrawn from any of them. Inherited accounts follow separate distribution timelines.

Timing and Consequences

The age at which RMDs begin has been raised by lawmakers in recent years, so the current rules are worth confirming against IRS guidance. The first distribution can often be delayed until April 1 of the year after the owner reaches the required age, but later distributions are due by December 31 each year. Withdrawals are generally taxed as ordinary income.

Missing an RMD triggers an excise tax on the amount that should have been withdrawn. The penalty has been reduced under recent law but remains significant, which is why many account holders arrange automatic withdrawals.

Why It Matters to Investors

RMDs can force sales or create taxable income in years when an investor might prefer otherwise. They also affect planning for tax bracket management and for giving through a qualified charitable distribution (QCD). Understanding RMDs is a common part of retirement income planning.