Required Minimum Distribution (RMD)

Required minimum distributions exist because traditional retirement accounts grow tax-deferred, and the government eventually wants its share. Starting at age 73, you must withdraw a minimum amount each year from traditional 401(k) and IRA accounts, calculated from your year-end balance and an IRS life-expectancy factor. Those withdrawals are taxed as ordinary income, whether or not you need the money.

RMDs can push retirees into higher tax brackets and raise the cost of Medicare, which is why planning ahead matters. A Roth IRA is exempt during the original owner’s lifetime, so it is not subject to RMDs. One common strategy is to convert traditional balances to Roth in lower-income years before RMDs begin, spreading the tax bill and shrinking future required withdrawals. Our Roth versus traditional playbook touches on how RMDs factor into the long-term tax picture.