What Is a Required Minimum Distribution (RMD) and How Do I Plan for It?

Most people in their 30s and 40s have never heard of a required minimum distribution, or think it's something they can worry about later. That's an understandable position. But the decisions you make in the next decade about where you save for retirement will have a direct impact on how much you owe in taxes at 73.

Understanding RMDs now, when you have time to plan around them, is worth a few minutes.

What Is a Required Minimum Distribution?

An RMD is a minimum amount the IRS requires you to withdraw from certain retirement accounts each year once you reach a specific age. Under SECURE 2.0, which became law in 2022, that age is now 73.

The accounts subject to RMDs include:

Traditional IRAs
401(k), 403(b), and 457(b) plans (pre-tax)
SEP IRAs and SIMPLE IRAs
Inherited IRAs (with different rules depending on your relationship to the original owner)

Roth IRAs are not subject to RMDs during the owner's lifetime. That distinction is one of the most important things to understand about Roth accounts.

How Is the RMD Amount Calculated?

Each year, the IRS requires you to withdraw a percentage of your account balance based on your age and a life expectancy factor from the IRS Uniform Lifetime Table. The older you are, the higher the percentage.

To give you a concrete example: at age 73, the IRS life expectancy factor is 26.5. If you have $1,000,000 in a traditional IRA at the end of the prior year, your RMD is roughly $37,700 ($1,000,000 divided by 26.5). By age 80, the factor drops to 20.2, so the same $1,000,000 balance would require a withdrawal of about $49,500. The percentage climbs every year.

And here's the key point: those withdrawals are taxed as ordinary income. Every dollar you pull out is added to your taxable income for that year, on top of Social Security benefits and any other income you have.

Why Does This Matter in Your 30s and 40s?

Because the more money you accumulate in pre-tax accounts now, the larger your RMDs will be in retirement, and the higher your tax bill.

Think about what happens if you spend your entire career maxing out a traditional 401(k) and never diversify into Roth accounts. If you're 35 today and contribute $24,500 a year for 30 years with reasonable investment growth, you could easily have $2 million or more in pre-tax accounts by 73. At that balance, your first RMD could be $75,000 or higher, and it only grows from there.

That $75,000 gets added to your Social Security income, any pension, rental income, or other withdrawals you take. You could find yourself in a higher tax bracket in retirement than you were during your working years. That surprises a lot of people.

It also affects Medicare premiums. Higher income in retirement triggers what's called IRMAA (Income-Related Monthly Adjustment Amount), which increases your Medicare Part B and Part D premiums. Large RMDs push income up, which can push premiums up with them.

The Case for Roth Contributions and Roth Conversions

This is the main reason financial planners talk so much about Roth accounts during your working years. Roth contributions go in after-tax, grow tax-free, and come out tax-free in retirement. More importantly, they are never subject to RMDs.

If you have $1 million in a Roth IRA at 73, you have zero forced withdrawals. You can leave it alone, let it keep growing, and pull from it only when it makes sense for your tax situation.

Two tools to manage your future RMD exposure:

Roth contributions during lower-income years. If you're in your 20s or early 30s and your income is below your expected peak, those are prime years to prioritize Roth contributions over pre-tax. You pay taxes now at a lower rate and avoid them later at a potentially higher rate.
Roth conversions. A Roth conversion means moving money from a traditional IRA or 401(k) to a Roth IRA. You pay taxes on the converted amount in the year you do it, but that money is permanently out of the pre-tax bucket and no longer subject to future RMDs. The best windows for conversions are years when your income is temporarily lower, such as between jobs, early in retirement before Social Security starts, or years with large deductions.

The Roth conversion post on this site goes deeper on when conversions actually make sense. The short version: doing conversions in your 50s and 60s, before RMDs kick in at 73, is one of the most effective tax-planning moves available.

What Happens If You Miss an RMD?

The penalty used to be 50% of the amount you failed to withdraw. SECURE 2.0 reduced it to 25%, and to 10% if you correct the mistake quickly. It's still a significant penalty, and it's one that can be completely avoided with basic planning.

If you have multiple traditional IRA accounts, you can aggregate the RMD amounts and take the total from any one or combination of those accounts. For 401(k) plans, you generally have to take the RMD from each account separately.

A Simple Way to Think About It

Pre-tax accounts, traditional 401(k)s and traditional IRAs, are not tax-free. They are tax-deferred. The IRS gave you a break now and will collect later, on a schedule it controls, not you.

Roth accounts shift that timing. You pay the tax now and own the growth outright. No forced withdrawals, no mandatory income, no RMD-driven tax bracket surprises at 73.

The right mix of pre-tax and Roth depends on your current income, your expected future income, and your specific situation. But if you're building a retirement account with zero Roth dollars in it, it's worth understanding what you're signing up for down the road.

Frequently Asked Questions

What is a required minimum distribution (RMD)?

An RMD is the minimum amount the IRS requires you to withdraw each year from pre-tax retirement accounts once you reach age 73 (under SECURE 2.0). The amount is calculated using your account balance and an IRS life expectancy factor. Withdrawals are taxed as ordinary income.

At what age do RMDs start?

Under SECURE 2.0 (signed into law in 2022), RMDs start at age 73 for most people. There is a provision to raise it to 75 in 2033. If you were born between 1951 and 1959, your RMD age is 73. If you were born in 1960 or later, it will be 75.

Are Roth IRAs subject to RMDs?

No. Roth IRAs are not subject to required minimum distributions during the account owner's lifetime. That is one of the main tax advantages of Roth accounts for long-term planning. Roth 401(k)s were previously subject to RMDs but SECURE 2.0 eliminated that requirement starting in 2024.

How can I reduce my future RMDs?

The most effective strategies are making Roth contributions during lower-income years and doing Roth conversions in years when your income is temporarily lower, such as early retirement before Social Security starts. Converting pre-tax money to Roth now removes it from the RMD calculation permanently.

What happens if I don't take my RMD?

The IRS imposes a penalty of 25% on any RMD amount you fail to withdraw (reduced to 10% if corrected quickly). SECURE 2.0 reduced the old 50% penalty but it's still significant. RMDs are easy to automate through your custodian and should not be missed once you're in that stage of retirement.

Why should someone in their 30s care about RMDs?

Because where you save money today determines your tax exposure at 73. The more you pile into pre-tax accounts without any Roth diversification, the larger your forced withdrawals and tax bills will be in retirement. Building some Roth balance now, while your income may be lower than your peak, reduces that future obligation.

Disclosure: This article is for educational purposes only and does not constitute personalized investment, tax, or legal advice. Individual situations vary. Please consult a qualified financial professional before making financial decisions. Villaire Financial, LLC is a registered investment adviser. Schedule a free intro call if you'd like to talk through your specific situation.