Understanding RMDs: Your Guide to Required Minimum Distributions on Retirement Accounts

If you’re approaching retirement or already enjoying your retirement years, you may have heard about RMDs and wondered what they actually mean for your finances. Required minimum distributions, commonly known as RMDs, are mandatory annual withdrawals that retirees must take from certain tax-deferred retirement accounts starting at a specific age. Understanding how RMDs work—especially if you have substantial savings like $250,000—is crucial for avoiding costly penalties and optimizing your retirement income strategy.

What Exactly Are RMDs and Why Do They Matter?

RMDs are essentially the IRS’s way of ensuring that tax-deferred retirement savings eventually get taxed. When you contribute pre-tax dollars to accounts like traditional IRAs or 401(k) plans, the government allows you to postpone paying income taxes on those contributions and their growth. However, this tax deferral doesn’t last forever. Once you reach a certain age, the IRS requires you to begin withdrawing a minimum amount each year and paying taxes on those withdrawals.

The amount you must withdraw is calculated using a specific formula: your prior year’s account balance divided by a life expectancy factor provided by the IRS. For someone with $250,000 in retirement savings at age 73, for instance, the 2026 RMD would be approximately $9,434 based on the IRS’s Uniform Lifetime Table.

Which Retirement Accounts Are Subject to RMD Requirements?

Not all retirement accounts have the same RMD rules. Understanding which accounts fall under these mandatory distribution requirements can help you plan more effectively. The following account types require RMDs:

• Traditional Individual Retirement Accounts (IRAs)
• Simplified Employee Pension (SEP) IRAs
• Savings Incentive Match Plan for Employees (SIMPLE) IRAs
• Traditional 401(k) plans
• Traditional 403(b) plans
• 457(b) plans

An important distinction: Roth accounts operate differently. While the original account owner is alive, Roth IRAs and Roth 401(k)s are not subject to RMD requirements. However, if you leave a Roth account to beneficiaries, they will need to follow RMD rules.

All RMDs must typically be withdrawn by December 31st each year. The single exception applies to your first RMD, which can be postponed until April 1st of the following year. After that initial extension, all subsequent distributions must be completed by year-end.

When Do You Need to Start Taking RMDs?

The age at which RMDs commence changed in recent years due to the Secure Acts of 2019 and 2022, which gradually increased the starting age. Your birth date determines when your obligation to withdraw begins:

• Born before July 1, 1949: RMDs start at age 70½
• Born July 1, 1949 to December 31, 1950: RMDs start at age 72
• Born January 1, 1951 to December 31, 1959: RMDs start at age 73
• Born after December 31, 1959: RMDs start at age 75

These changes were designed to give younger workers more time to allow their investments to grow before mandatory distributions kick in.

How to Calculate Your RMD: The $250,000 Example

Calculating RMDs involves dividing your account balance from December 31st of the previous year by a life expectancy factor from an IRS table. For 2026 distributions, the IRS looks at what you had in your account on December 31, 2025.

The IRS provides three different life expectancy tables, and which one you use depends on your circumstances:

• Table I (Single Life Expectancy): Used by beneficiaries
• Table II (Joint and Last Survivor Life Expectancy): Used if your sole beneficiary is a spouse more than 10 years younger
• Table III (Uniform Lifetime): Used if your sole beneficiary is a spouse not more than 10 years younger, or if you have multiple beneficiaries

Here’s a simplified portion of the Uniform Lifetime Table showing the distribution period for various ages:

Real-World Scenario 1: Marcus turns 73 in 2026 and holds a traditional IRA with a December 31, 2025 balance of $250,000. His 2026 RMD is calculated as $250,000 ÷ 26.5 = $9,434. Since this is his first distribution, he has the option to delay withdrawal until April 1, 2027. However, his second RMD (for 2027) must be taken by December 31, 2027.

Real-World Scenario 2: Jennifer is 74 in 2026 and maintains two separate traditional IRAs. One contains $250,000 and the other contains $500,000 (both as of December 31, 2025). The first account requires an RMD of $250,000 ÷ 25.5 = $9,804, while the second requires $500,000 ÷ 25.5 = $19,608. Jennifer can combine these amounts and withdraw the full $29,412 from either account, or she can take separate withdrawals from each.

Real-World Scenario 3: David turns 77 in 2026 with a traditional IRA holding $250,000 and a traditional 401(k) also holding $250,000 (both valued as of December 31, 2025). Each account generates an RMD of $250,000 ÷ 22.9 = $10,918. Unlike the previous scenario, David cannot combine these amounts—he must withdraw $10,918 from each account separately because 401(k)s, 403(b)s, and similar employer plans don’t permit aggregation.

Penalties and Consequences for Missing RMD Deadlines

Missing an RMD deadline carries significant financial consequences. The IRS imposes an excise tax equal to 25% of the amount not withdrawn as required. This means if you were supposed to withdraw $9,434 but withdrew nothing, you would owe the IRS $2,358.50 in taxes (25% of $9,434)—and you’d still need to take the full RMD.

However, the penalty structure includes some flexibility. If you correct the shortfall within two years, the penalty can be reduced to 10%. If you can demonstrate that the failure was due to reasonable error and you correct it promptly, the penalty may be waived entirely. To qualify for a waiver, you must attach a written explanation to IRS Form 5329 and submit it with your tax return.

Key Takeaways About RMDs

Understanding and managing your RMDs is a fundamental aspect of retirement planning. Whether you have $250,000 or significantly more in retirement accounts, knowing your obligations, calculation method, and deadline can prevent expensive mistakes. Take time to determine which of your accounts require RMDs, calculate the exact amounts you must withdraw, and set calendar reminders to ensure timely compliance. When in doubt, consulting with a financial advisor or tax professional can provide personalized guidance based on your specific situation.