What are Required Minimum Distributions (RMDs)?
RMDs force you to withdraw a minimum percentage from Traditional IRAs and 401(k)s starting at age 73 (75 for those born after 1960). The percentage starts at ~3.8% at 73 and increases each year. On a $1M Traditional IRA at age 73, your RMD is approximately $37,700 — taxed as ordinary income whether you need the money or not.
Formula
RMD = Account Balance (Dec 31 prior year) ÷ Life Expectancy Factor from Uniform Lifetime Table
Example
Traditional IRA: $800,000 at age 75. Divisor: 24.6. RMD = $800,000 ÷ 24.6 = $32,520. This is added to your taxable income on top of Social Security, potentially pushing you into a higher bracket.
How it works in detail
RMDs exist because the government gave you a tax break when you contributed — now they want their taxes. The Uniform Lifetime Table determines your divisor: at 73 it's 26.5 (3.77%), at 80 it's 20.2 (4.95%), at 90 it's 12.2 (8.2%). Roth IRAs have NO RMDs (a huge advantage). Strategies to minimize RMD impact: (1) Roth conversions before 73 to reduce Traditional balance, (2) Qualified Charitable Distributions (QCD) — donate RMD directly to charity, no income tax, (3) Start strategic withdrawals at 65–72 to reduce the balance before RMDs kick in. If you miss an RMD, the penalty is 25% of the missed amount (reduced from 50% by SECURE 2.0). Plan ahead: a $2M Traditional IRA at 73 means $75k+ in forced taxable income on top of Social Security.
See how RMDs affect your tax bill in retirement
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Should I choose Roth or Traditional IRA?
Choose Roth if you expect higher taxes in retirement (younger, income will grow, or tax rates rise). Choose Traditional if you're in a high bracket now and expect lower taxes later. For most accumulating workers under 50 in the 22–24% bracket, Roth is preferred because of tax-free growth and no Required Minimum Distributions.
When should I do a Roth conversion?
Convert Traditional IRA/401(k) to Roth during years when your income is unusually low — early retirement before Social Security, sabbaticals, or gap years. Fill up the 10% and 12% brackets ($0–$47,150 single in 2024) with conversions, paying minimal tax on money that then grows tax-free forever.
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