Tax-deferred retirement accounts such as traditional IRAs and employer-sponsored plans are powerful tools for building long-term wealth. They allow your savings to grow without being reduced by taxes each year, and in many cases, contributions may also provide an upfront tax benefit.
However, these tax advantages are not permanent. Eventually, the IRS requires that you begin withdrawing money from traditional retirement accounts through what are known as required minimum distributions, or RMDs.
Understanding how RMDs work and planning for them in advance can help you avoid unnecessary taxes, penalties, and surprises in retirement.
What Are RMDs?
RMDs are mandatory annual withdrawals from traditional, non-Roth retirement accounts once you reach a certain age.
- If you were born between 1951 and 1959, RMDs generally begin at age 73
- If you were born in 1960 or later, RMDs generally begin at age 75
There is one important exception. If you are still working beyond your RMD age and do not own more than 5% of the company you work for, you may be able to delay RMDs from your current employer’s retirement plan until you retire. RMDs from prior employer plans must still be taken.
Which Accounts Are Subject to RMDs?
RMDs apply to most traditional retirement accounts, including:
- Traditional IRAs
- SEP IRAs and SIMPLE IRAs
- 401(k), 403(b), and 457(b) plans
- Profit-sharing plans
Roth IRAs are not subject to RMDs during the original owner’s lifetime, which makes them an important planning tool for many retirees.
How Are RMDs Calculated?
Your RMD is calculated based on two factors:
- The value of your retirement account as of December 31 of the prior year
- A life expectancy factor provided by the IRS
Each account has its own RMD calculation. For IRAs, the IRS allows you to total your RMD amounts and withdraw the full amount from one IRA if you choose. Employer-sponsored plans generally require RMDs to be taken separately from each account.
You may always withdraw more than the required amount, but failing to withdraw enough can result in penalties.
How Do RMDs Affect Taxes?
RMDs are typically taxed as ordinary income. Depending on the size of your accounts and other income sources, RMDs can:
- Increase your overall tax bill
- Affect the taxation of Social Security benefits
- Increase Medicare premiums
While your first RMD may be delayed until April 1 of the year following the year you reach RMD age, doing so means you would have to take two RMDs in the same calendar year. That can significantly increase taxable income, which is why timing matters.
Planning Strategies to Consider
RMD planning does not begin at retirement age. Some of the most effective strategies are implemented years in advance.
Roth Conversions
Converting a portion of traditional retirement assets to a Roth IRA creates taxable income in the year of conversion, but it may reduce future RMDs and provide greater flexibility later in retirement.
Qualified Charitable Distributions (QCDs)
For those who are charitably inclined, a qualified charitable distribution allows you to transfer funds directly from your IRA to a qualified charity. This can satisfy your RMD without increasing taxable income.
In 2026, individuals can direct up to $111,000 per year, or $222,000 for married couples filing jointly, through QCDs.
Why Planning Ahead Matters
Missing an RMD can result in a penalty of up to 25% of the amount not withdrawn, though the penalty may be reduced if corrected promptly. Beyond penalties, unplanned RMDs can create unnecessary tax burdens and disrupt a well-designed retirement strategy.
At Snyder Wealth Group, we view RMDs as one component of a broader retirement and tax plan. With proactive planning, coordinated withdrawals, and thoughtful strategy, RMDs can be managed in a way that supports both your lifestyle and your legacy.
If you are approaching RMD age or would like to understand how future RMDs may impact your financial plan, now is the right time to start the conversation. Early planning can provide clarity, flexibility, and peace of mind.
