Required Minimum Distributions (RMDs)

IRS-mandated withdrawals from tax-deferred accounts starting at age 73+

How it works

RMDs force withdrawal of a percentage of tax-deferred assets each year based on IRS life expectancy tables. The percentage increases with age. Failure to take RMDs results in steep penalties.

  1. 1. Determine RMD Age

    RMD starting age depends on birth year due to SECURE 2.0 Act

    Born before 1951: Age 72 (prior law — RMDs already in progress for these clients)
Born 1951-1959: Age 73
Born 1960 or later: Age 75
    Example: Client born 1965 starts RMDs at age 75 (year 2040)

  2. 2. Calculate RMD Percentage

    Use IRS Uniform Lifetime Table to determine distribution percentage

    RMD % = 1 / Life Expectancy Factor
    Example: Age 75: Factor 24.6 → 1/24.6 = 4.07% Age 80: Factor 20.2 → 1/20.2 = 4.95% Age 90: Factor 12.2 → 1/12.2 = 8.20%

  3. 3. Calculate RMD Amount

    Apply percentage to prior year-end account balance

    RMD Amount = Account Balance × RMD %
    Example: $500k IRA at age 75 → $500k × 4.07% = $20,350 RMD

  4. 4. Aggregate All Accounts

    Sum all tax-deferred accounts (IRA, 401k, 403b) for total RMD

    Example: $300k Traditional IRA + $200k 401k = $500k total → calculate RMD on $500k

Real-world context

SECURE 2.0 Act Changes

The SECURE 2.0 Act (2022) increased RMD starting age from 72 to 73 (for those born 1951-1959) and to 75 (for those born 1960+). This gives tax-deferred assets more time to grow tax-free. The act also reduced the penalty for missed RMDs from 50% to 25% (or 10% if corrected promptly).

IRS reference: IRS Notice 2023-54

RMD Planning Strategies

Many retirees have more income than needed and must still take RMDs, creating unwanted tax liability. Strategies include: (1) Roth conversions before RMD age, (2) QCDs to satisfy RMDs tax-free, (3) Strategic withdrawals to deplete accounts before RMDs begin.

The RMD Tax Trap

RMDs can push retirees into higher tax brackets, increase Medicare premiums (IRMAA), and cause Social Security benefits to become more taxable. Planning ahead with Roth conversions and strategic withdrawals can minimize this impact.

What drives the result

Tax-Deferred Account Balances
Assets tab → Tax-Deferred Assets

Larger balances result in larger RMDs and higher retirement taxes

$1M IRA → ~$40k RMD at age 75 (~$8-10k tax) vs $500k IRA → ~$20k RMD (~$4-5k tax)

Client Birthdate
Client profile

Determines when RMDs begin (age 73 or 75 based on birth year)

Born 1960+ delays RMDs 3 years vs born before 1951

Roth Conversion Amounts
Strategies → Roth Conversion

Converting traditional IRA to Roth reduces future RMD requirements

Converting $200k now eliminates ~$8k annual RMDs later

QCD Donations
Strategies → Charitable Giving

QCDs satisfy RMD requirement without increasing taxable income

$20k RMD satisfied by $20k QCD → $0 added to AGI (vs $20k taxable withdrawal)

Assumptions

  • Uses IRS Uniform Lifetime Table (assumes spousal beneficiary within 10 years of age)
  • Account balances based on December 31 prior year values
  • All tax-deferred accounts aggregated (IRA, 401k, 403b treated as one pool)
  • Penalties for missed RMDs not modeled (50% excise tax on shortfall)
  • QCDs (Qualified Charitable Distributions) count toward RMD and shown separately

Limitations

  • Does not account for special rules if spouse is >10 years younger (different table)
  • Inherited IRA distributions use the Single Life Table (IRS Publication 590-B, Table I), not the Uniform Lifetime Table. Stratum models this via the dedicated Inherited IRA asset type — distributions are calculated automatically per the applicable SECURE Act 2.0 rule (life expectancy stretch for eligible designated beneficiaries, 10-year rule for non-EDBs). See the Inherited IRA asset documentation for full details.
  • Does not track RMD separately by account type (though IRS allows this for IRAs)

Related

This page explains how Stratum models this calculation. It is educational material for financial professionals, not tax or legal advice, and tax law changes. Verify current figures against primary IRS sources before relying on them with a client.