In my book, Flipping a Switch, I refer to required minimum distributions (RMDs) as “the mandatory flipped switch” (i.e., transition). This is because, unlike many other decisions in later life that involve choices, there is no choice about RMDs. They must begin starting at age 72, unless taxpayers want to pay a hefty 50% tax penalty.

In conversations with older adults at classes that I teach, many tell me that RMDs are affecting their income taxes in a big way.

They never expected to accumulate the wealth that they did and, instead of being in a lower tax bracket in later life, as they were told they would be, they have a higher taxable income and/or tax bracket than when they were working.

As we approach December 31, required minimum distributions are on the radar screen for many older adults.

Key Deadline Dates

Two key deadlines for RMDs are December 31 for routine annual RMD withdrawals at age 72+ and April 1 for legally postponed RMD withdrawals (i.e., the required beginning date for a taxpayer’s first RMD and the “still working exception” for a current employer’s retirement savings plan).

Key Ages

Taxpayers can make withdrawals from tax-deferred accounts without a 10% penalty starting at age 59½ and must begin required minimum distribution withdrawals starting at age 72. Withdrawals made at any age are taxed as ordinary income.

Calculation of RMDs

RMDs are based on a taxpayer’s current age divisor and their account balance on December 31 of the previous year. For example, the divisor for age 72 is 27.4. Someone age 72 with a $100,000 account would need to withdraw $3,650 ($100,000 ÷ 27.4, rounded).

Timing of Withdrawals

RMDs can be taken as one withdrawal or a series of withdrawals during the course of a year.

Some people arrange automatic monthly payments through their retirement plan custodian to simulate a “paycheck” while others take their RMD quarterly or in one lump sum. It is a good idea to consider investment performance and portfolio rebalancing needs when taking RMDs.

New RMD Table

A new Uniform Lifetime Table took effect for RMDs beginning in 2022. Compared to the table that was used previously; the age-based divisors are slightly higher and the RMD withdrawal amounts are slightly smaller. Of course, people can always withdraw more than the minimum amount it they are willing to pay higher taxes. There is also a separate life expectancy table for couples where a spouse is more than ten years younger than the account owner.

RMD Percentages

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The updated RMD table has life expectancy-based divisors for ages 72 to 120. As a taxpayer’s age increases, the percentage of their account balance that must be withdrawn increases. At age 72, RMDs (divisor of 27.4) are 3.65% of an account balance. At ages 80, 90, and 100, the percentages are 4.96%, 8.20%, and 15.63%, respectively.

Tax Penalty

The penalty tax for missing or incorrect RMD withdrawals is one of the largest tax penalties in the tax code: 50% of the amount that was supposed to have been withdrawn but was not. For example, if someone was supposed to withdraw $10,000 and only withdrew $5,000; the penalty excise tax would be $2,500 (50% of the missing $5,000).

Tax Leniency

The IRS can waive penalties for RMD shortfalls due to “reasonable error.” 

Taxpayers must withdraw the RMD that should have been taken and file Form 5329 with an attached letter to explain the situation.

First RMD

Taxpayers can take their first required minimum distribution by April 1 of the year following the year they turn 72. However, if they do this, they will have two distributions the following year for the current tax year and previous tax year. Factors to consider when making this decision are health status, financial need, and income and tax bracket in both tax years.

Combining Accounts

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Taxpayers can total multiple traditional IRA account balances, including rollover IRAs, and take a distribution for all IRAs from only one account or any combination of accounts. People will often do this for portfolio rebalancing reasons. Required minimum distributions for IRAs cannot be with other types of accounts (e.g., 401(k)s and 403(b)s), however, nor can RMDs for personal IRAs and inherited IRAs be combined.

RMD Withdrawal Uses

Once they make withdrawals, taxpayers can do whatever they want with RMD money. Common uses are:

  • Income tax estimated payments
  • Living expenses
  • Fun entertainment expenses (e.g., travel)
  • Charitable gifting
  • Re-saving the money in a taxable account
  • Roth IRA if they have earned income (salary/wages and/or self-employment earnings)


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