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What RMDs are
Many retirement accounts let your money grow without being taxed for decades. Required minimum distributions are the rules that say you cannot defer that forever. Once you reach a certain age, you must begin withdrawing at least a minimum amount from those accounts each year.
The triggering age sits in the early seventies under current rules, though it has been raised several times over the years, so it is worth confirming the age that applies to you.
Why they exist
Accounts like traditional IRAs and 401(k)s give a tax break up front and let investments grow untaxed. The government allows this on the understanding that it will eventually collect income tax when the money comes out.
RMDs make sure that happens. They prevent people from sheltering money in tax-advantaged accounts indefinitely and force the deferred tax to be paid in retirement.
Which accounts they apply to
RMDs apply to most tax-deferred accounts, including traditional IRAs, SEP IRAs, and workplace plans like 401(k)s. The key exception is a Roth IRA, which has no required distributions during the original owner's lifetime because the tax was already paid up front.
That Roth exemption is one reason some people value Roth accounts for flexibility later in life.
- Apply to traditional IRAs, SEP IRAs, and 401(k)-style plans
- Roth IRAs are exempt for the original owner
- Inherited accounts have their own separate rules
How they are calculated and the penalty
Each year's RMD is roughly your account balance divided by a life-expectancy factor from an official table, so the required percentage rises gradually as you age. The institution holding your account can usually calculate the figure for you.
Missing an RMD has historically carried a steep penalty on the amount you failed to withdraw, so taking the distribution on time matters. The penalty has been reduced under recent rules but remains significant.
💡 Do not miss the deadline:The penalty for skipping an RMD is large relative to the amount involved. If you have tax-deferred accounts, mark the deadline and let your provider help you calculate the figure.
Frequently asked questions
At what age do RMDs start?
Under current rules the starting age sits in the early seventies, but it has been raised several times over the years. Because the age has changed and may change again, it is worth confirming the rule that applies to your situation.
Which accounts have required minimum distributions?
RMDs apply to most tax-deferred accounts, including traditional IRAs, SEP IRAs, and 401(k)-style workplace plans. The main exception is a Roth IRA, which has no required distributions for the original owner.
Are Roth IRAs subject to RMDs?
A Roth IRA has no required minimum distributions during the original owner’s lifetime, because the money was already taxed before going in. This flexibility is one reason some savers value Roth accounts later in life. Inherited accounts follow different rules.
What is the penalty for missing an RMD?
Missing a required distribution has historically triggered a steep penalty on the amount you failed to withdraw. Recent rules reduced it, but it remains significant, so taking the distribution on time is important.
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