Required Minimum Distributions (RMD) 2026: Calculate & Avoid the 25% Penalty
Quick Answer
When you reach 73 years old (age of RMD commencement in 2026, increasing to 75 by 2032), you must withdraw a minimum amount from your traditional IRA and 401(k) annually, or pay a 25% penalty on the shortfall. Your RMD = (account balance at end of previous year) ÷ (IRS life expectancy factor). Calculate it by April 1 of the following year. If you miss the deadline, the IRS fine is steep: 25% of the amount you should have withdrawn (down from 50% pre-2023 SECURE Act).
The RMD Rules for 2026
Key rules:
- RMD starts at age 73 (for those turning 73 in 2026 or later)
- But if you turned 72 before 2023, you were grandfathered in at 72
- RMD deadline: December 31 of each year (or April 1 if it's your first RMD)
- Roth IRAs: No RMD during original owner's lifetime (HUGE advantage)
- Inherited IRAs: Different rules (10-year distribution rule or RMD, depending on type)
The RMD Calculation (It's Simple Math)
RMD = (IRA balance on 12/31 previous year) ÷ (IRS life expectancy factor)
The IRS publishes life expectancy factors (tables).
Example: Age 73, $1,000,000 traditional IRA
Using 2026 IRS tables:
- Life expectancy factor for age 73: 26.5
- RMD = $1,000,000 ÷ 26.5 = $37,735
You must withdraw $37,735 by December 31, or pay a 25% penalty ($9,434).
Example: Age 80, $1,000,000 traditional IRA
- Life expectancy factor for age 80: 20.2
- RMD = $1,000,000 ÷ 20.2 = $49,505
As you age, your RMD gets larger (because your life expectancy factor decreases).
Why RMDs Exist
The IRS wants you to withdraw from tax-deferred retirement accounts eventually.
If they let you keep money in a traditional IRA forever without withdrawals, you could pass it to heirs tax-free and they'd have a $5M+ Roth equivalent.
RMDs force you to take income (and pay taxes) during retirement.
RMD Penalty Increased (SECURE Act 2.0)
Before 2023: Miss your RMD? Pay 50% penalty on shortfall.
2023+: Miss your RMD? Pay 25% penalty on shortfall.
Example: Your RMD is $40,000. You only withdraw $30,000. Shortfall = $10,000.
Penalty = 25% × $10,000 = $2,500
This is a huge improvement. But still painful. Don't miss RMDs.
RMD Strategies to Minimize Taxes
Strategy 1: Qualified Charitable Distribution (QCD)
If you're 70.5+, you can donate up to $100,000/year from your IRA directly to charity.
Benefit: This counts toward your RMD without adding to taxable income.
Example:
- Your RMD is $40,000
- Your taxable income is already high ($100k+)
- You donate $40,000 directly to charity (QCD)
- RMD satisfied: Yes
- Taxable income increased: No
- Tax saved: ~$12,800 (32% of $40k)
Strategy 2: Roth Conversion (Before RMD Years)
Before RMD kicks in, convert traditional IRA to Roth.
You pay taxes now (on the conversion), but then Roth has no RMD. Ever.
Example:
- Age 65: Convert $200,000 from traditional to Roth
- Pay taxes now: $200k × 24% = $48,000
- Age 73+: Your Roth has no RMD
- Roth grows tax-free for another 30+ years
- Total tax savings: Could be $100k+ over your lifetime
Strategy 3: Withdraw More, Invest in Taxable Account
If your RMD is $40,000 but you don't need it, withdraw anyway.
Invest in a taxable brokerage account. Growth is taxed (but at favorable capital gains rates instead of ordinary income rates).
Benefit: You're moving money from tax-deferred to tax-advantaged, slowly, over your lifetime.
Strategy 4: 401(k) Still-Working Exception
If you're still working at age 73+ and you don't own the company, you might not be required to take RMD from your current employer's 401(k).
But you MUST take RMD from old 401(k)s.
This is called the "still-working exception."
Common Mistakes with RMDs
❌ Mistake 1: Forgetting to take your RMD You're 74, you have a $1M IRA, you assume you don't need to withdraw. You forget to take your RMD. Penalty: 25% of shortfall.
✅ Better approach: Set a calendar reminder December 1. Calculate your RMD. Withdraw by December 31. Done.
❌ Mistake 2: Withdrawing from wrong account You have a traditional IRA and a Roth IRA. You only need to RMD the traditional. But you withdrawal from the Roth by mistake.
This doesn't count toward your RMD. You still owe the traditional IRA withdrawal. Penalties apply.
✅ Better approach: Track which accounts need RMD (traditional IRA, 401(k), etc.). Only withdraw from those.
❌ Mistake 3: Taking too much too early You have an $800,000 IRA and an $800,000 401(k). You're required to take RMD from each separately. But you take your entire $800k IRA RMD plus extra from your 401(k), leaving your 401(k) depleted.
You might have paid too much in taxes that year.
✅ Better approach: Calculate RMD for each account. Spread withdrawals ratably.
❌ Mistake 4: Not accounting for RMD in tax planning Your RMD is $40,000. Your other income is $60,000. Total taxable income: $100,000. You didn't plan for the RMD taxes, now you owe $20,000 at tax time.
✅ Better approach: Model your RMD in January. Set aside taxes through withholding or estimated tax payments.
Step-by-Step: Calculate and Take Your RMD
Check if you're subject to RMD
- Born January 1, 1951 or earlier? You're subject to RMD at age 73 (or 72 if grandfathered in)
- Have traditional IRA or 401(k)? You're subject
- Have Roth IRA? No RMD (during your lifetime)
Find your IRA balance as of 12/31 previous year
- Log into Fidelity, Schwab, Vanguard, etc.
- Get your account balance
- If you have multiple IRAs, add them together (aggregate for RMD purposes)
Find your age as of 12/31 of current year
- Even if you haven't had your birthday yet this calendar year, use your age on 12/31
Look up your life expectancy factor
- IRS publishes Uniform Lifetime Table
- Find your age on the table
- Record the factor
Calculate RMD
- RMD = Account balance from step 2 ÷ Life expectancy factor from step 4
- Write down this number
Withdraw the amount by December 31
- Request withdrawal from your IRA provider
- Confirm it posts to your account by 12/31
Report on your tax return
- This withdrawal shows up on your 1099-R
- Report it on your tax return
- You pay income tax on the distribution
If you're 70.5+, consider a QCD instead
- If you donate to charity, ask if you can do a Qualified Charitable Distribution
- This satisfies your RMD without adding taxable income
- Saves ~30% in taxes
Repeat annually
- Every year after that, repeat steps 2–8
- Your RMD increases slightly as you age (because life expectancy factor decreases)
Run /products/retirement-calculator
- Model your RMD impact on your taxes
- See if you should do Roth conversions to reduce future RMDs
FAQ
Q: Do I have to spend my RMD, or can I invest it? A: You can invest it (in a taxable brokerage account). The key is it must be withdrawn from the IRA/401(k). What you do with it after is your choice.
Q: What if I'm married and have two IRAs? A: You calculate RMD for each IRA separately. But you can take the total RMD from any combination of your IRAs. So take one large withdrawal from one IRA instead of two small ones. Simpler.
Q: Can I take RMD quarterly instead of all at once? A: Yes. Just make sure the total by 12/31 adds up to your RMD. Taking it quarterly is often smarter (smooths income across the year, reduces tax bracket impact).
Q: What if I miss the deadline? A: You have until April 1 of the following year to take your first RMD. After that, it's December 31 each year. Miss it? Penalty is 25% of the shortfall.
Q: Can I delay RMD if I'm still working? A: The still-working exception might apply to your current 401(k), but not to old 401(k)s or IRAs. Check with your plan administrator.
The Bottom Line
RMDs are mandatory. Calculate it every year. Withdraw by December 31.
If you don't need the money, invest it in a taxable account or donate it via QCD.
The goal is to manage your tax bracket and minimize lifetime taxes.
Use /products/retirement-calculator to model your RMD impact and tax strategy.