A Required Minimum Distribution (RMD) is the minimum amount the IRS requires account holders to withdraw annually from tax-deferred retirement accounts, ensuring the government eventually collects income tax on those funds.
RMD start age: Age 73 (as of 2023, per SECURE Act 2.0; was 72 before). First RMD can be delayed until April 1 of the following year, but then two RMDs must be taken that year.
Accounts subject to RMDs: - Traditional IRA, SEP-IRA, SIMPLE IRA. - 401(k), 403(b), 457(b) plans (unless still employed and non-5% owner). - Inherited IRAs (all beneficiaries).
Accounts NOT subject to RMDs (during owner's lifetime): - Roth IRA — no RMDs for original owners. - Roth 401(k) — RMDs eliminated by SECURE 2.0 starting 2024.
Calculating the RMD: > RMD = Prior December 31 account balance ÷ Life expectancy factor (from IRS Uniform Lifetime Table)
Example: Account balance $500,000 at Dec 31. Age 75 → distribution period factor = 22.9. RMD = $500,000 ÷ 22.9 = $21,834.
Penalty for not taking RMD: 25% excise tax on the shortfall (reduced to 10% if corrected within 2 years; SECURE 2.0 reduced the original 50% penalty).
Inherited IRA RMDs: Most non-spouse beneficiaries must deplete inherited IRAs within 10 years (SECURE Act). Annual RMDs within that 10-year period are required if the original owner had already started RMDs.
> Exam tip: RMD age = 73. No RMDs for Roth IRAs (owner's lifetime). 25% penalty for missed RMDs. Inherited IRAs = 10-year rule for most non-spouses. Heavily tested on CFP® and EA Part 2.