Required Minimum Distributions (RMDs) – 7 Facts to Know

Navigating the complexities of Required Minimum Distributions (RMDs) is essential for anyone with a retirement account, especially as you approach your 70s. These mandatory withdrawals, enforced by the IRS, ensure that tax-deferred retirement savings are eventually taxed.

With ever-changing rules, like the gradual increase in RMD age and specific strategies like Qualified Charitable Distributions (QCDs), understanding how to manage these distributions can significantly impact your financial and tax planning. 

Whether you’re new to RMDs or want to ensure you’re handling them effectively, these seven frequently asked questions will equip you with the knowledge to make informed decisions and avoid costly mistakes.

7 FAQs About RMDs

  1. What does RMD refer to?
    RMDs refer to the minimum amount you must withdraw annually from certain retirement accounts once you reach a specified age, currently, it’s age 73.  For individuals born in 1960 or later, the RMD age increases to 75 starting in 2033.

  2. Is taking an RMD mandatory?
    These withdrawals are mandated by the IRS to ensure tax-deferred retirement savings are eventually taxed. RMDs apply to:
    Traditional IRAs
    SEP IRAs
    Simple IRAs
    401k plans
    403b plans
    457b plans

  3. How is an RMD calculated?
    The calculation is based upon the balance of the account as of December 31 of the previous year and the IRS Uniform Lifetime Table, which provides a divisor based on your life expectancy. For example, if your account balance is $1,000,000 and your IRS divisor is 25, your RMD is $40,000.

  4. Is there a penalty if you do not withdraw the RMD?
    If you fail to withdraw the RMD, you may face a 25% excise tax on the amount not withdrawn or 10% if correctly promptly.

  5. How are RMDs taxed?
    RMDs are taxed as ordinary income.

  6. What is a Qualified Charitable Distribution (QDC)?
    A qualified charitable distribution (QDC), is a tax-free transfer of funds directly from a traditional IRA (not SEP or Simple IRAs or 401Ks or equivalent) to a qualified charitable organization.

    For a person 73 or older, QCDs count towards satisfying RMDs if sent directly to the charitable organization.   
    This kind of transfer may be a good idea if it allows the taxpayers to drop to the lower marginal tax bracket or when the taxpayers do not qualify for the itemized deduction, and therefore otherwise get no tax benefit for the charitable contribution.

    The QCD limits are per taxpayer, currently at $105,000, therefore joint filers can double the potential limit to $210,000 annually.   The taxpayer (donor) is required to obtain a written acknowledgment (for any QCDs of $250 and more) from the charity before filing the return. 

  7. What if you inherit a retirement account?
    If you are a non-spouse and inherit a retirement account, there have been recent changes under The Secure Act (and The Secure Act 2.0)  which requires the full balance be withdrawn by the end of the 10th year after the account holder’s death, and if the late owner had been taking RMDs, the inheritor must continue to do so in years one through nine after the death before clearing out whatever’s left by the end of the year 10.

If this seems overwhelming to you, there are people you can call for assistance including your financial advisor, CPA, or a daily money manager (DMM).   


We, at Everyday Money Management, would be happy to help. Contact us.

Sharon Zissman