Required minimum distributions, explained

What an RMD is

A required minimum distribution is the amount you must withdraw each year from traditional IRAs, 401(k)s, the traditional TSP, and similar pre-tax accounts once you reach a certain age. Each withdrawal is taxed as ordinary income.

When they start

The starting age is 73 if you were born from 1951 through 1959, and 75 if you were born in 1960 or later. Your first RMD is due by April 1 of the year after you reach that age. Every later one is due by December 31. Waiting until April 1 for the first one means you will take two in the same year.

The penalty for missing one

If you take less than the required amount, the IRS can charge a penalty of 25% of the shortfall, reduced to 10% if you correct it promptly. It is an expensive mistake, and an easy one to avoid with a plan.

Why people dread them

Forced withdrawals can push you into a higher tax bracket in your seventies and eighties. They can also make more of your Social Security taxable and raise your Medicare premiums through income-related surcharges.

The larger your pre-tax balances grow, the larger your RMDs become.

What you can do before they start

Fill lower brackets on purpose. In the years between retirement and RMD age, some people deliberately withdraw or convert pre-tax money while their bracket is low.

Consider Roth conversions. Roth IRAs have no required distributions for the original owner. A conversion is taxable in the year you do it, so the timing matters.

Use qualified charitable distributions. If you give to charity, giving directly from an IRA starting at age 70½ can satisfy part of your RMD without adding to your taxable income.

Know which accounts count. Roth 401(k) accounts no longer have RMDs for the owner, and Roth IRAs never have.

None of these is right for everyone, and the right mix depends on your income, your bracket, and your goals.