Required Minimum Distribution Planning

Required Minimum Distributions (RMDs) force you to withdraw money from traditional retirement accounts starting at a certain age. Understanding the rules and planning ahead helps you avoid penalties and minimize taxes on these mandatory withdrawals.

RMD Age Requirements

The SECURE Act 2.0 changed RMD ages based on your birth year:

Accounts subject to RMDs:

• Traditional IRAs
• 401(k), 403(b), 457(b) plans
• SEP IRAs
• SIMPLE IRAs
• Inherited IRAs (different rules apply)

Accounts NOT subject to RMDs:

• Roth IRAs (during owner's lifetime)
• Roth 401(k) (starting in 2024, no longer subject to RMDs)

Calculating Your RMD: The Uniform Lifetime Table

The IRS requires you to divide your December 31 account balance by a life expectancy factor from the Uniform Lifetime Table.

Formula: RMD = Prior Year-End Balance ÷ Distribution Period Factor

Uniform Lifetime Table (Selected Ages)

Note: If your spouse is more than 10 years younger and is your sole beneficiary, you use the Joint Life Expectancy Table instead, which results in smaller RMDs.

Sample RMD Calculations

As you age, the distribution period decreases, forcing larger withdrawals as a percentage of your balance.

First-Year RMD: The April 1 Decision

For your first RMD only, you can delay the withdrawal until April 1 of the following year. However, this means taking two RMDs in one calendar year, which may push you into a higher tax bracket.

Example: First RMD timing decision

Robert turns 73 in July 2024. His options:

Tax impact comparison (assuming $20,000 RMD each year):

If Robert's other income is consistent, Option A spreads the tax burden more evenly. Option B only makes sense if 2024 income is unusually high.

Multiple Accounts: Aggregation Rules

If you have multiple traditional IRAs, you calculate the RMD for each account separately but can withdraw the total from any one or combination of IRAs.

Example:

You can take the entire $18,868 from IRA #1, or split it among accounts however you prefer.

Important: 401(k) plans do NOT aggregate. You must take each 401(k)'s RMD from that specific account. This is one reason to consolidate old 401(k)s into an IRA before RMDs begin.

Qualified Charitable Distribution (QCD) Strategy

A QCD allows you to transfer up to $105,000 (2024 limit, indexed for inflation) directly from your IRA to a qualified charity. The distribution counts toward your RMD but is excluded from taxable income.

QCD vs. Regular Distribution + Donation

Key QCD advantage: Even if you take the standard deduction (and can't deduct charitable contributions), the QCD still excludes the distribution from income.

QCD Requirements

• You must be 70½ or older (not 73)
• Distribution must go directly from IRA to charity
• Charity must be a 501(c)(3) organization
• Donor-advised funds do NOT qualify
• Must be completed by December 31
• Keep acknowledgment letter from charity

Worked Example: $500,000 IRA at Age 73

The Situation

Patricia, age 73, has:

• Traditional IRA: $500,000
• Social Security: $30,000/year
• Pension: $18,000/year
• Filing status: Single

Calculating Patricia's RMD

Step 1: Determine the distribution period At age 73, the Uniform Lifetime Table factor is 26.5

Step 2: Calculate RMD $500,000 ÷ 26.5 = $18,868 (minimum required withdrawal)

Tax Impact Analysis

Federal tax calculation:

• 10% on first $11,600 = $1,160
• 12% on $11,601-$45,818 = $4,106
• Total federal tax: $5,266

Strategy Option 1: Take Only the RMD

Patricia takes exactly $18,868 to satisfy her RMD. Her taxable income remains at $45,818.

Strategy Option 2: QCD for Charitable Giving

Patricia regularly donates $5,000/year to her church. Instead of taking her full RMD and then donating, she does a $5,000 QCD:

Tax savings from QCD:

• Original taxable income: $45,818
• New taxable income: $40,818
• Reduction: $5,000
• Tax saved at 12% bracket: $600

Patricia achieves the same charitable impact while reducing her tax bill by $600.

Strategy Option 3: Roth Conversion Beyond RMD

Patricia's taxable income of $45,818 is well within the 12% bracket (which ends at $47,150 for single filers). She could withdraw an additional $1,332 and convert it to a Roth IRA, keeping all her income in the 12% bracket.

This converts $1,332 at 12% tax ($160) rather than potentially higher rates in future years.

Multi-Year Projection

Assuming 5% annual growth and RMD withdrawals only:

Despite taking RMDs, the account balance continues growing because the RMD percentage (roughly 4%) is less than the assumed 5% growth rate. This "RMD gap" means traditional IRA balances often continue growing into the mid-80s.

RMD Penalties and How to Avoid Them

Missing an RMD triggers a penalty equal to 25% of the amount not withdrawn (reduced from the previous 50% penalty). The penalty drops to 10% if corrected within two years.

Common RMD mistakes:

1. Forgetting the first RMD deadline
2. Not taking RMDs from each 401(k) separately
3. Missing December 31 deadline
4. Confusing Roth conversions with RMDs (conversions don't count toward RMD)
5. Taking RMD from wrong account type

Prevention strategies:

• Set up automatic RMD distributions
• Mark calendar reminders for October (allows time to complete by December 31)
• Work with a financial advisor or tax professional
• Consolidate accounts before RMD age to simplify tracking

RMD Planning Checklist

• Determine your RMD starting age based on birth year
• Calculate your first-year RMD using the Uniform Lifetime Table
• Decide whether to take first RMD in the initial year or delay to April 1
• List all accounts subject to RMDs (traditional IRAs, 401(k)s)
• Remember: aggregate IRAs, but not 401(k)s
• Consider consolidating 401(k)s into IRA before RMD age
• Evaluate QCD strategy if you make charitable donations
• Calculate tax bracket space beyond RMD for potential Roth conversions
• Set up automatic distributions or calendar reminders
• Complete all RMDs by December 31 (except first-year April 1 option)
• Keep records of all distributions for tax filing
• Review and update beneficiary designations annually