Financial essentials

RMDs and taxes:
What you need to know

What is a required minimum distribution (RMD) and how might it affect your taxes? This overview can help you understand the basics and feel more prepared for what comes next.

Summary

  • What is an RMD? RMDs are the minimum amounts you must withdraw from certain retirement accounts each year once you reach a specific age.
  • What age do my RMDs start? Your birth year determines your RMD start date. Check out, “What age do my RMDs start?” below.
  • When is my RMD deadline? December 31 is always the deadline for RMDs except for your first withdrawal, which you’re allowed to delay until April 1 of the next year.
  • How do RMDs affect my taxes? RMDs are treated as taxable income, so taking an RMD has the potential to push you into a higher tax bracket.
  • Ways to potentially reduce RMDs do exist, including Roth conversions, Qualified Charitable Distributions and continuing to work after your RMD age.

A brief introduction to RMDs

RMDs are a part of retirement planning that many people don’t think about until they’re required to start taking them. The rules have changed over time, which can sometimes make the withdrawals feel confusing.

“One of the biggest issues we see with RMDs is confusion around the rules,” says Jim Bergeron, J.D., managing director at Nuveen, a TIAA company. Knowing the basics can help you avoid surprises and feel more confident about your retirement income plan.

How much is my RMD?

Most financial institutions calculate your RMD for you, but you can also do it yourself. Take the amount in your retirement account on December 31 of the last tax year and divide it by the IRS factor for your age, which you can find here.

A young woman helps her grandmother with RMDs and taxes in their home.

Most IRAs require RMDs as well, including traditional, simplified employee pension (SEP) and savings incentive match plan for employees (SIMPLE) IRAs. If someone inherits your IRA, they too will need to take RMDs.

Roth IRAs are different: If you’re the original owner of a Roth IRA, you do not need to take RMDs. However, the beneficiaries of your Roth IRA (i.e. someone who inherits your Roth IRA) will have their own distribution rules.

What age do my RMDs start?

The age your RMDs begin depends on the year you were born. Once you reach your RMD age, you’ll need to take required withdrawal(s) each year.

Many financial institutions calculate RMDs for their customers and may even offer automatic withdrawals. But even if your provider calculates the amount for you, it’s still your responsibility to make sure you withdraw on time. Checking your account early in the year can help you avoid mistakes. If you have a TIAA retirement account, you can see your RMD details here.

Common points of confusion

When is my RMD deadline?

Your deadline is December 31 of each year after you reach RMD age. The exception is your first RMD, which you may delay until April 1 of the following year. Keep in mind that delaying means you’ll take two withdrawals in that year, which could increase your taxable income for the year.

What if I have multiple retirement accounts?

  • Workplace plans like 401(k)s or 403(b)s require separate RMD calculations and withdrawals from each plan.
  • For IRAs, you must calculate the RMD for each IRA, but you may withdraw the total amount from one or more IRAs in any combination as long as you’ve withdrawn the total amount.

Can married couples combine RMDs?

No. Even if you file jointly, each spouse must calculate and take RMDs from their own account(s).

What happens if I miss an RMD?

If you don’t take your RMD or withdraw too little, the IRS may assess a penalty of up to 25% of the amount you didn’t withdraw. If you correct the mistake and complete the payment within two years, you can file an appeal to potentially bring the penalty down to 10%. To file an appeal use IRS form 5329.

How do RMDs affect my taxes?

Most RMDs are taxed as ordinary income, and the amount you’ve withdrawn is added to your adjusted gross income for the year. This may:

  • Push you into a higher tax bracket
  • Impact how much of your Social Security benefit is taxable
  • Increase your Medicare premiums

“When planning for RMDs, it’s important to consider its impact on your tax bracket and effect on other taxes you may be subject to,” says Jim.

Ways to potentially reduce RMDs

There are a few ways to reduce the amount you’re required to withdraw, which can reduce the impact on taxes. “If you need the money to pay your expenses, you should take it out,” says Jim. “But if you're not going to need that money you might consider opportunities to reduce your RMDs or, if you have the opportunity, to defer them to a later date.”

  1. Roth IRA conversion

    You may be able to convert money from a traditional retirement account to a Roth IRA. After funds have been in the account for five years, generally Roth withdrawals aren’t subject to RMDs during your lifetime.


  2. Qualified charitable distributions (QCDs)

    If you want to contribute to charities, a QCD allows you to send money directly from your retirement account to a qualified charity. The distribution:

    • Counts toward your RMD
    • Does not count towards your taxable income

    This isn’t right for everyone but, “If you don't need the money and the government is essentially forcing you to take it by way of an RMD, and you’re charitably inclined, this is a really great alternative,” says Jim.


  3. Continue working

    If you continue working past your RMD age and keep contributing to your current employer’s retirement plan, you may be able to delay RMDs from that specific plan. You need to be actively employed by the business sponsoring the plan and you can’t own more than 5% of the company. Not all workplace plans allow this exception—check the rules for your specific retirement plan to see if you qualify. If you’re unsure, speak with your plan administrator or a financial professional. The “still working exception” only applies to retirement plans from a company you’re currently working for; it doesn’t apply to IRAs or plans from previous employers.

What’s next? Steps to take

Here are a few actions that can help get you started with RMDs.

  1. Figure out when your RMDs begin. Start thinking about RMDs early in your retirement planning. If you retire before your RMDs start, you might begin when you stop working. If you plan to continue working, think about your RMDs the year before they start.
  2. Determine out how much you need to withdraw. Your IRA custodian or plan administrator will often calculate it, but you can also use the IRS Uniform Lifetime Table, available here. To calculate it yourself, take the amount that’s in your retirement account on December 31 of the previous tax year and divide it by the IRS factor for your age.
  3. Withdraw your money on time. Ask your financial institution whether withdrawals occur automatically. If not, make sure to make your withdrawal by December 31, or, if it’s your first RMD, by April 1 of the next tax year.
  4. Consider working with a tax or financial professional if your situation feels complicated or you’d like personalized guidance. If you’re not already working with a professional, you can find one at the American Institute of Certified Public Accountants (AICPA) or the National Association of Tax Professionals (NATP).

Required minimum distributions can be easier to manage when you understand the rules and plan. A few thoughtful steps can help you minimize tax surprises, stay in control, and retire with greater confidence.

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This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision.

TIAA companies and CREF do not provide legal or tax advice. Consult your advisors to address your specific circumstances.

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