What are the tax implications of missing an RMD?

If you miss an RMD, you might need to pay up to a 25% excise tax on the amount not withdrawn.

How do I roll over my RMD to a qualified charity?

To do this, contact your custodian and ask them to make the transfer directly to the qualified charity, a process known as a qualified charitable distribution (QCD).

How do I report RMDs on my tax return?

Form 1099-R is typically used to do this.

Can I delay my first RMD if I’m still working?

Yes, you can in fact do so until April 1 of the year after you leave your employer via the “still working” exception so long as you’re employed, own less than 5% of the business sponsoring the retirement plan, and have an employer-sponsored retirement account from your current employer.

Can I reinvest my required minimum distribution?

The government requires you pay taxes on your RMD withdrawals, but you’re free to spend or reinvest the money however you wish (aside from reinvesting it in a tax-advantaged account). You can, however, potentially reinvest your RMD in a Roth IRA if you’ve earned income equal to or greater than the amount reinvested and you meet eligibility criteria based on account income limits.

How much tax should I withhold from my RMD?

When you take your RMD, your custodian will (by default) withhold 10% of the payout amount for taxes. However, you have the option to withhold either more or less or even waive withholding altogether—with these parameters ultimately depending on your own unique financial situation.

Do 403(b) plans have required minimum distributions?

403(b) plans, offered by public schools and charities, come preloaded with the very same RMD requirements outlined in this article.

RMDs: Rules, Penalties, Avoiding/Minimizing Taxes, and More

If you're saving money in a 401(k) or traditional IRA for retirement, you probably know that taxes are deferred on these accounts—often over many decades. The government will eventually seek to collect taxes on these funds, however, typically when retirees are required to take minimum distributions from their plans.

What’s a required minimum distribution (RMD)?

RMDs are the minimum amount you must withdraw each year from some tax-deferred retirement accounts, beginning at age 73 (rising to age 75 in 2033). More specifically, RMD rules apply to a range of employer-sponsored retirement plans including 401(k), 403(b), profit-sharing, and 457(b) plans, as well as traditional IRAs and IRA-based plans such as SEPs, SARSEPs, SIMPLE IRAs, and—in the case of inherited accounts—Roth IRAs. All of these accounts are subject to RMD requirements.

Deadline for taking RMDs from retirement accounts

The deadline to take your RMD is December 31st of each year, though you do have two timing options for your very first one. If you turn 73 in 2026, for example, you can take your first RMD by December 31, 2026 or delay it until April 1, 2027. Keep in mind that all subsequent RMDs must be taken by December 31 each year, meaning your second RMD would be due by December 31, 2027.

How to calculate your RMD

To calculate your required RMD, divide the total value of all your retirement accounts as of December 31 (the previous year) by the IRS-provided life expectancy factor (distribution period): determining the minimum amount you must withdraw for the year.

For example, assume you have a traditional IRA valued at $500,000 on December 31, 2025. If you turn 73 in 2026, you’d look up your age in the IRS Uniform Lifetime Table giving you your life expectancy factor—26.5, in this case. Dividing $500,000 by 26.5 results in an RMD of $18,867.92, which you must withdraw by April 1, 2027. The life expectancy factor changes each year, so it’s important to use the most current table.

When to use a different table

When your spouse is your only beneficiary and is more than ten years younger than you

If your spouse is your sole beneficiary and more than ten years younger than you, use the Joint Life and Last Survivor Expectancy Table instead of the Uniform Lifetime Table as it accounts for both your ages to result in a longer life expectancy and lower RMD.

When you have multiple IRAs

If you have multiple IRAs (including SEP and SIMPLE IRAs), calculate the RMD separately for each account knowing you can withdraw the combined total RMD from any one or more of your IRAs (e.g.. from the account with the lowest balance).

When you have a 401(k) or 403(b)

This rule differs for qualified retirement plans or employer-sponsored accounts such as 401(k)s or 403(b)s, in which case you must take an RMD separately from each account. If you have two 401(k)s, for example, you’ll need to withdraw a separate RMD from each one.

Understanding your investment options can help optimize your RMD strategy and ensure compliance with IRS rules.

Inherited retirement accounts and RMDs

When you inherit a retirement account—such as a traditional IRA, 401(k), or Roth IRA—you become subject to a unique set of required minimum distribution (RMD) rules determining how and when you must begin taking distributions from the inherited account. These can vary depending on your relationship to the original account owner as well as your age.

The Secure Act and 10-year rule

With the Secure Act triggering major changes to RMD rules for inherited retirement accounts, most non-spouse beneficiaries must withdraw the entire account balance within 10 years of the account owner’s death—this “10-year rule” replacing the previous option of stretching distributions over your own life expectancy to help minimize taxable income each year. However, some designated beneficiaries (e.g., surviving spouses, minor children, and individuals who are disabled or chronically ill) may still qualify to take RMDs based on their own life expectancy or delay taking distributions until a later age.

How to calculate RMDs for inherited accounts

To calculate the required minimum distribution for an inherited retirement account, start by determining the account balance as of December 31 of the prior year. Next, use the IRS Uniform Lifetime Table to find the life expectancy factor matching your age. Divide the account balance by this life expectancy factor to arrive at the RMD amount you must withdraw for the year.

If you inherit a traditional IRA with a $100,000 balance and your life expectancy factor is 25.5, for example, your minimum distribution for the year would be $3,921. A different calculation applies for spouses more than 10 years younger than the original account owner, potentially reducing the RMD amount. Spouses also have the option to treat the inherited IRA as their own, sometimes providing additional flexibility with respect to timing and RMD calculations.

RMD penalties

If your circumstances dictate you withdraw more than the minimum amount required, you can! However, keep in mind this may involve tax implications as your withdrawal will be taxed as ordinary income (i.e., the same rate as wages, interest income, or short-term capital gains).

If you fail to take the full amount of your RMD by the required deadline, meanwhile, the IRS may impose a substantial penalty potentially making you liable for a 25% excise tax on the amount not withdrawn (sometimes reduced to 10% if you quickly correct the mistake by withdrawing the required amount and filing an updated tax return on time). You can also request an excise tax waiver from the IRS if you have a valid reason such as a serious illness or exposure to incorrect advice from a tax preparer or IRA sponsor.

How to avoid taxes on RMDs

Wondering how to delay, minimize, or even avoid paying taxes on your RMDs altogether? Consider some of the following strategies…

Stay employed

The “still working” exception allows you to delay RMD requirements for your employer-sponsored retirement account, provided you meet the following conditions:

· You’re still working (perhaps that’s obvious, given the name)

· You own less than 5% of the business sponsoring the retirement plan

· You have an employer-sponsored retirement account from your current employer

Still working” simply means you’re employed, regardless of your weekly hours. The primary benefit here is that you can postpone RMDs until April 1 of the year after you leave your employer. (Note: This only applies to retirement accounts with your current employer, not with previous employers.)

Perform a Roth conversion

Another approach is to convert some of your savings into a Roth IRA via a process referred to as a Roth conversion, with Roth IRAs generally exempt from RMDs during the account owner's lifetime (and any earnings able to grow tax-free indefinitely). While you must pay taxes on the converted amount (one drawback), conversions do make sense for those whose income drops significantly (due to a job loss, low-income year, or retirement before Social Security or RMDs), who have investments declining in value, or who anticipate unfavorable tax law changes.

Employ a carve-out strategy

Two notable carve-out strategies exist here. The first, a “qualified longevity annuity contract” (QLAC), allows you to invest up to $210,000 (adjusted for inflation) in a special deferred income annuity providing lifetime income. Money placed in a QLAC is excluded from your IRA balance and not subject to RMDs until the payout date of your choosing, no later than age 85.

The second type of carve out—applying to company stock owned in one's 401(k)—is known as a “net unrealized appreciation strategy,” dictating you roll over the portion of your 401(k) invested in company stock into a taxable account (e.g., a brokerage account) with the remaining balance rolled into a traditional IRA: allowing you to pay taxes on the company stock's original cost rather than its current market value, with any post-purchase gains taxed as capital gains (not ordinary income) and thus potentially saving you money. Using this strategy also reduces your retirement account balance, lowering future RMDs.

Engage in philanthropy

A "qualified charitable distribution" (QCD) allows you to transfer up to $115,000 (adjusted for inflation) from a traditional IRA directly to an IRS-qualified charity on an annual basis. While the advantage of doing so is that you can exclude the transferred amount from your taxable income, QCDs have specific rules and considerations that require careful management.

Execute an in-kind transfer

While you must typically sell assets to generate enough cash to meet your RMD and then distribute the cash, in-kind transfers allow you to move assets (e.g., stocks or bonds) directly from your retirement account to a taxable brokerage account without selling them.

To do this, select the assets you want to move, and work with your financial advisor or institution to initiate the transfer to your taxable brokerage account (knowing the transfer itself isn’t taxable, but you will owe taxes on the market value of assets moved). In-kind transfers ultimately help you keep your investment positions intact—particularly useful if you expect the market to recover after a decline—and you can manage your tax liability strategically by selecting assets with lower capital gains or losses to transfer.

Limit distributions in the first year

You can take your initial RMD by December 31st the year after you turn 73 or (as mentioned earlier) wait until April of the following year (2027, if your 73rd birthday falls within 2026). Should you decide to wait and based on this example, your second distribution would be due by December 31, 2027. Note that taking two distributions in the same year can push some investors into a higher tax bracket and thus require a larger payment to Uncle Sam. For others, it may make more sense to take the first distribution as soon as possible to limit tax liability.

In sum: understanding required minimum distributions (RMDs)

Whether retirement is on the horizon or still a few years away, related preparations involve so many unique circumstances including understanding RMDs and corresponding strategies. Fortunately, you don’t need to go it alone and can seek help from a qualified financial advisor while starting down the path toward retirement.

Have questions about RMDs or retirement accounts? Schedule a free consultation with one of our CFP® professionals to get them answered.

FAQs

If you miss an RMD, you might need to pay up to a 25% excise tax on the amount not withdrawn.
To do this, contact your custodian and ask them to make the transfer directly to the qualified charity, a process known as a qualified charitable distribution (QCD).
Form 1099-R is typically used to do this.
Yes, you can in fact do so until April 1 of the year after you leave your employer via the “still working” exception so long as you’re employed, own less than 5% of the business sponsoring the retirement plan, and have an employer-sponsored retirement account from your current employer.
The government requires you pay taxes on your RMD withdrawals, but you’re free to spend or reinvest the money however you wish (aside from reinvesting it in a tax-advantaged account). You can, however, potentially reinvest your RMD in a Roth IRA if you’ve earned income equal to or greater than the amount reinvested and you meet eligibility criteria based on account income limits.
When you take your RMD, your custodian will (by default) withhold 10% of the payout amount for taxes. However, you have the option to withhold either more or less or even waive withholding altogether—with these parameters ultimately depending on your own unique financial situation.
403(b) plans, offered by public schools and charities, come preloaded with the very same RMD requirements outlined in this article.

About the author
The content in this post was developed by our team of writers and reviewed by our team of CFP® professionals here at Vision Retirement.

Retirement Planning | Advice | Investment Management