What required minimum distributions are, when they kick in, and why they cost more than most retirees expect
The Distribution You’re Required to Take
If you’ve spent decades building up a traditional IRA or 401(k), you may have assumed that money is yours to use on your own timeline. The IRS sees it differently. Once you reach a certain age, the government requires you to begin taking money out of those accounts each year, whether you need the income or not. These are called Required Minimum Distributions, or RMDs.
The logic is straightforward: that money was never taxed when it went in, and the IRS intends to collect eventually. RMDs are the mechanism that ensures it happens.
For many retirees, RMDs feel like a minor administrative task. Money moves from one account to another, and life goes on. But for high-income individuals, the impact can be far more significant than it first appears. The tax cost of an RMD often extends well beyond the distribution itself.
When Do RMDs Begin?
The SECURE 2.0 Act, passed in late 2022, moved the RMD starting age from 72 to 73. Another increase, to age 75, is scheduled for 2033. If you turned 73 this year, your first RMD is due by April 1 of next year. One caution: delaying to April means taking two distributions in a single calendar year, which can create a larger-than-expected tax bill. For most people, starting in the year they turn 73 is the cleaner approach.
For everyone already in RMD territory, the annual deadline is December 31. Missing it carries a 25% penalty on the amount that should have been withdrawn — reduced to 10% if corrected quickly, but a painful outcome either way.
The rules apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer plans including 401(k)s and 403(b)s. Roth IRAs are the notable exception. They carry no RMD requirement during the original owner’s lifetime, which is one reason Roth conversions earlier in retirement can be a valuable planning tool.
How Is the Amount Calculated?
Each year, the IRS calculates your RMD using your prior December 31 account balance divided by a life expectancy factor from the IRS Uniform Lifetime Table. As you age, that factor decreases, which means the percentage you’re required to withdraw goes up each year, even if your balance is declining.
If you have multiple IRAs, you can aggregate them and take the total RMD from any combination of those accounts. Employer plan accounts like 401(k)s must be calculated and distributed separately. Inherited IRAs have their own set of rules entirely.
The Hidden Tax Costs Most Retirees Don’t Anticipate
This is where the conversation gets important.
RMDs are taxed as ordinary income. They add directly to your adjusted gross income (AGI) for the year. And, a higher AGI doesn’t just increase your income tax, it can trigger a chain of consequences that amplify the true cost of the distribution:
- Medicare IRMAA surcharges. Medicare Part B and Part D premiums are income-tested. Once your income crosses certain thresholds, you begin paying surcharges on top of standard premiums — and those surcharges apply two years after the income is earned. An RMD taken today can affect what you pay for Medicare coverage in 2028.
- Social Security taxation. Social Security benefits are tax-free for low-income retirees, but up to 85% of benefits can become taxable once combined income exceeds $34,000 for singles or $44,000 for married couples. A meaningful RMD can push you past that threshold and effectively tax your Social Security as a side effect.
- Capital gains bracket creep. The 0% long-term capital gains rate is only available up to a certain income level. A larger RMD can push investment gains from the 0% bracket into the 15% or 20% bracket — a tax cost entirely separate from your ordinary income rate.
The takeaway: the real cost of your RMD is often larger than the marginal rate suggests. For high-income retirees, thoughtful planning around how and when distributions are taken can make a meaningful difference.
Up next in Part 2:
If you’re charitably inclined, there’s a tool that lets you satisfy your RMD, support the causes you care about, and avoid recognizing the income altogether. In Part 2, we’ll walk through Qualified Charitable Distributions — what they are, how they work, and the planning scenarios where they make the biggest difference.
This article is intended for educational purposes only and does not constitute tax, legal, or investment advice. Tax rules are subject to change and individual circumstances vary. Please consult with a qualified tax professional before implementing any strategy discussed here.