Understanding Required Minimum Distributions: What You Need to Know

Understanding Required Minimum Distributions (RMDs) is essential for anyone with tax-deferred retirement savings or inherited retirement accounts. These distributions are more than a formality; they represent the IRS’s way of ensuring that tax-deferred savings eventually become taxable. Mismanaging RMDs can lead to unnecessary taxes and penalties that are easily avoided with a clear understanding of the rules. This guide will walk you through what RMDs are, why they must be taken, who must take them, how to calculate them accurately, and how to integrate them into a sound financial plan.

What Are RMDs and Why Must They Be Taken?

RMDs represent the minimum amount that must be withdrawn each year from certain retirement accounts once an individual reaches a specific age or inherits an account from someone who has passed away. They apply to:

• Traditional IRAs, SEP IRAs, and SIMPLE IRAs

• Employer-sponsored plans such as 401(k)s, 403(b)s, and 457s

• Inherited IRAs

The purpose of RMDs is straightforward: while retirement accounts allow individuals to defer income taxes on contributions and investment growth, the IRS requires eventual distributions so those funds can be taxed. Without RMDs, account owners could allow assets to grow tax-deferred indefinitely, depriving both the federal and state governments (if you live in a state with state income tax) of the tax revenue they are due.

Roth IRAs are an exception. The original owner of a Roth IRA is not required to take RMDs during their lifetime because contributions are made with after-tax dollars. However, beneficiaries who inherit Roth IRAs are subject to distribution rules, ensuring that even tax-free accounts are eventually paid out and not preserved indefinitely.

Who Must Take RMDs?

The IRS uses a concept called the Required Beginning Date (RBD) to determine when an account owner must start taking RMDs. Your RBD depends on your birth year:

• If you were born in 1950 or earlier, your RMD begins the year in which you turn 72.

• If you were born between 1951 and 1959, your RMD begins the year in which you turn 73.

• If you were born in 1960 or later, your RMD begins the year in which you turn 75.

In the year in which you reach your required beginning date, you may delay your first RMD until April 1 of the following year, but doing so will require you to take two distributions that year – one for the prior year and one for the current year. This can increase your taxable income and may push you into a higher tax bracket or trigger higher Medicare premiums (known as IRMAA surcharges).

RMDs also apply to inherited retirement accounts, though the rules differ based on your relationship to the original account owner. For more on this, jump ahead to the Inherited IRAs and Beneficiary Rules section.

How RMDs Are Calculated

RMDs are calculated by dividing the prior year-end account balance by a life expectancy factor from one of the IRS’s tables. Most account holders use the Uniform Lifetime Table, but if your spouse is more than 10 years younger and is your sole beneficiary, you must use the Joint and Last Survivor Table, which generally results in smaller required withdrawals.

Although financial institutions typically calculate RMDs automatically, it is the account holder’s responsibility to ensure the figure is correct. Custodians often do not have complete information, especially if you hold accounts at multiple firms or have a spouse who is more than 10 years younger or the date of death in the case of Inherited IRAs. To confirm accuracy, use an independent RMD calculator, such as this one from Charles Schwab, to verify your required distribution amount.

If you own multiple IRAs, you may aggregate your total RMD and take it from one or several accounts. RMDs from employer-sponsored plans such as 401(k)s or 403(b)s, however, must be taken separately from each plan. Failing to withdraw the full amount results in an excise tax of 25% of the amount not distributed, though the penalty may be reduced to 10% if corrected within two years.

Integrating RMDs Into a Broader Tax Strategy

While RMDs cannot be avoided, they can be managed strategically. Some individuals choose to take distributions gradually throughout the year to align with cash flow needs and manage tax withholding, while others wait until later in the year once they have a clearer picture of their total income.

For those seeking to minimize the tax impact of RMDs, Qualified Charitable Distributions (QCDs) allow individuals age 70½ or older to donate up to $108,000 in 2025 directly from their IRA to a qualified charity. QCDs count toward your RMD and are excluded from taxable income, which can also help reduce exposure to IRMAA surcharges or the 3.8% Net Investment Income Tax, making them one of the most powerful tools for retirees who give to charity. For a deeper look at how QCDs work, check out our Qualified Charitable Distributions (QCDs): How to Donate from Your IRA Tax-Free blog post.

It is also important to note that Roth conversions do not satisfy RMDs. You must first take your RMD for the year before converting any remaining pre-tax balances to a Roth IRA. However, Roth conversions may still be a useful strategy once your RMDs are complete, especially if your tax bracket is expected to rise in future years. For more information about Roth conversions, see our Roth Conversions Explained: A Guide to Tax-Free Retirement Income blog post.

Individuals subject to RMDs can also choose to have federal and state income taxes withheld directly from their distribution, which helps avoid an unexpected tax bill when filing your return and may prevent underpayment penalties. Any remaining funds can be reinvested in a taxable account for continued growth if they are not needed for living expenses.

Inherited IRAs and Beneficiary Rules

Inherited IRAs have become increasingly complicated following the SECURE Act and its subsequent updates, as the rules vary depending on the relationship between the beneficiary and the deceased. Eligible designated beneficiaries (EDBs) – spouses, minor children of the decedent, disabled or chronically ill individuals, and beneficiaries not more than 10 years younger than the original owner – may take distributions over their life expectancy. Spouses have even more flexibility, including the option to roll the inherited assets into their own IRA and delay distributions until they reach their own required beginning date. Minor children can stretch RMDs until they reach the age of 21, at which point the 10-year rule begins.

Non-eligible designated beneficiaries must generally deplete the account within ten years under what is known as the 10-year rule of the SECURE Act. The 10-year rule requires that the entire inherited account be emptied by December 31 of the tenth anniversary of the original owner’s death.

If the deceased account owner had already begun taking RMDs, the beneficiary must continue taking annual distributions during that period. Also, the RMD for the year of the owner’s death must be taken if it was not already satisfied before their passing. However, if the owner had not yet reached their RBD, annual RMDs are not required, but the account must still be fully distributed by the end of the tenth year following the owner’s death.

Because inherited IRA rules are intricate and mistakes can be costly, beneficiaries should work with a qualified financial planner or tax professional to ensure compliance and identify the most efficient distribution strategy.

Avoiding Common Mistakes

Even experienced investors make mistakes with RMDs that lead to penalties or unnecessary tax burdens. One of the most frequent is omitting an account from the RMD calculation, especially when individuals have multiple or “orphaned” accounts left with former employers. Each applicable account must be included when calculating your total RMD, and distributions must be made from the appropriate accounts. Employer-sponsored plans cannot be aggregated with IRAs, even if they are held at the same custodian.

Anyone subject to RMDs can elect to have taxes withheld directly from their distributions. This can help manage withholding throughout the year and prevent surprises during tax season. Additionally, reviewing your year-end statements is an excellent way to verify that your RMD has been satisfied; many custodians print the RMD amount and indicate whether the requirement has been met for the year.

Finally, even though custodians provide RMD figures, it is always wise to verify the amount independently using a trusted RMD calculator. Financial institutions may not have the complete picture of your total holdings or may use the wrong life expectancy table in special circumstances. Taking a few minutes to double-check the math can prevent unnecessary stress and potential penalties later on.

The Bottom Line

RMDs are an essential part of managing tax-deferred assets, whether you are drawing from your own retirement accounts or managing inherited assets. Understanding who must take them, how they are calculated, and how to incorporate them into your broader financial strategy can help you avoid costly penalties and unnecessary taxes.

If you are unsure whether you have taken the correct RMD for 2025, or if you would like to review ways to integrate RMDs into your financial plan more efficiently, schedule a planning session with us. Taking the time to review your strategy now can help you avoid costly penalties, optimize your tax picture, and ensure your wealth continues working for you in the most tax-efficient way possible.

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About the Author

Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and nationwide with the financial decision-making process to organize, grow, and protect your assets.

** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions.