Required Minimum Distributions—commonly called RMDs—are mandatory withdrawals from certain tax-advantaged retirement accounts. The IRS requires RMDs because these accounts were funded with pre-tax dollars, and taxes were deferred until money is withdrawn. RMDs ensure that the government eventually collects income tax on those savings.
Understanding the rules surrounding Required Minimum Distributions (RMDs) and knowing exactly when you must begin taking them is essential for optimized tax planning, including avoiding stiff tax penalties on your savings. Recent law changes have shifted the starting age for RMDs, making it more important than ever to stay informed so you don’t miss key deadlines.
What Accounts Require Minimum Distributions?
RMDs generally apply to the following accounts:
- Traditional IRAs
- SEP IRAs and SIMPLE IRAs
- Most employer retirement plans, including 401(k), 403(b), and 457(b) plans
- Inherited IRAs and inherited employer retirement plans
Roth IRAs do not require RMDs during the owner’s lifetime, though inherited Roth IRAs do have rules for beneficiaries.
The Current Rules for RMDs
The One Big Beautiful Bill Act, commonly referred to as the OBBBA, passed in 2025, made significant changes to tax law. However, it did not impact laws relating to RMDs.
Rather, the latest rules for RMDs have been set out in the SECURE Act 2.0, which became law on December 29, 2022. And even though penalties for not taking RMDs have been reduced, they are still severe, so it’s important to keep track of your personal time frame.
The current key provisions for RMDs include the following:
RMD Starting Age
Your first RMD must be taken the year you turn:
- Age 73 — if you reach age 73 in 2023–2032
- Age 75 — if you turn 74 after December 31, 2032
Most seniors today will begin RMDs at age 73.
For your very first RMD, you may choose one of two options:
- Take the RMD during the year you turn 73, or
- Delay it until April 1st of the following year. However, if you delay the first one, you will have to take two RMDs in that next year—your delayed first RMD and your second RMD—potentially increasing taxable income for the year.
The Penalties for Not Taking RMDs on time
The IRS penalty for missing all or part of an RMD used to be 50% of the amount not withdrawn. Today, the penalty is:
- 25% of the amount you failed to withdraw – this is in addition to the income tax you are required to pay
- Reduced to 10% if corrected in a timely manner
How Much and For How Long
Once you begin taking RMDs, you must continue taking them each year until your tax-deferred savings are exhausted. The minimum amount you are required to take each year is calculated based on:
- Your retirement account balance as of December 31st of the previous year, and
- Life expectancy tables published by the IRS.
The calculation basically divides your account balance by the number of years you are expected to live to get an annual distribution amount. Your financial institution can calculate the RMD for you, but it is ultimately your responsibility to ensure the correct amount is withdrawn on time.
Plan Ahead
Avoiding stiff penalties from the IRS is a strong incentive to make sure you take your RMDs on time. But it’s also advisable to plan ahead in managing your distributions so that they fit within your broader framework for taxable income levels as well as your overall retirement and estate plans.
If you would like to learn more about RMDs, please reach out to your Crestwood team. If you are not yet working with Crestwood, please contact us to discuss your individual circumstances.
This document is provided for general informational purposes only by Crestwood Advisors, an investment adviser. Crestwood Advisors does not provide legal advice, and this document should not be construed as containing legal advice. For legal advice, consult with a licensed attorney. This document should not be construed as containing tax advice. For tax advice, consult with your tax adviser.
