When I first retired, I remember staring at my IRA statement one morning with my coffee in hand, thinking, “So now that I’ve saved all this, do I finally just get to relax and let it grow?” A few weeks later, my financial advisor smiled politely and said, “Not exactly, William. The IRS will want its cut eventually.” That’s when I met my new retirement companion, Required Minimum Distributions, or RMDs for short. Like a relative who shows up every year whether you invite them or not, RMDs are predictable, unavoidable, and, if you handle them smartly, manageable.

Let’s talk about what they are, how they work, and how to keep them from tripping up your retirement plan.

What Exactly Is an RMD?

An RMD is the government’s way of saying, “You’ve had tax-deferred growth long enough, it’s time to pay up.” When you contributed to your traditional IRA or 401(k), you got a tax break. The money grew without you paying taxes on it, which was nice while you were working. But Uncle Sam doesn’t forget. Once you reach a certain age, the IRS requires you to start withdrawing a portion of that money each year, and those withdrawals are taxed as ordinary income.

It’s not that the IRS is being mean about it; they just want their share before you (well, let’s be honest) head off to that great retirement community in the sky. Fair trade, I suppose.

When You Have to Start Taking Them

For years, the magic number was 70½. Then Congress decided that half-birthdays were confusing (and they were right). So, as of recent law changes, the starting age for RMDs is 73 if you were born between 1951 and 1959, and it will increase to 75 for those born in 1960 or later.

That’s right, you now have a little more breathing room before you have to start making withdrawals. But don’t get too comfortable. Once that age arrives, you’ll have until April 1 of the following year to take your first RMD. After that, every year’s RMD must be taken by December 31.

Here’s a little quirk that trips people up: if you delay your first RMD until April 1, you’ll still have to take your second RMD by December 31 of that same year. That means you’ll take two taxable withdrawals in one calendar year, which could bump you into a higher tax bracket. I learned this the hard way when I realized that a “delay” doesn’t mean “skip.” So, if you can afford it, it’s often smarter to take your first RMD in the year you turn the required age, not the year after.

How RMDs Are Calculated

This is where things get a little mathy, but don’t worry, you don’t need to dust off your old calculator from the 1970s. The IRS does the heavy lifting with a set of tables that estimate your life expectancy. Essentially, the amount you must withdraw each year is based on your account balance at the end of the previous year divided by your life expectancy factor from the IRS table.

For example, let’s say you have $500,000 in your traditional IRA at the end of last year, and according to the IRS table, your life expectancy factor is 24.6. Divide $500,000 by 24.6, and you get an RMD of about $20,325. That’s the amount you must withdraw this year. If you have multiple accounts, say a 401(k) and a couple of IRAs, you’ll have to calculate each separately, though you can usually take the total from one IRA if you prefer. (But you can’t combine RMDs from an IRA and a 401(k), that’s an IRS no-no.)

You can find the official life expectancy tables on the IRS website, but if you’re like me, you might prefer to let your financial custodian or advisor handle it. Most will calculate it for you automatically each year, which is one less thing to worry about between golf and afternoon naps.

What Happens If You Forget

Here’s where the IRS really shows its teeth. If you fail to take your full RMD, you’ll face a hefty penalty, 25% of the amount you should have withdrawn. Ouch. Thankfully, if you correct the mistake quickly, that penalty can drop to 10%. But still, it’s not the kind of surprise you want in retirement.

I once heard of a retiree who missed an RMD because he thought his financial advisor was handling it automatically. The result? A nasty tax bill and a few sleepless nights. The lesson: always double-check that your RMDs have been taken care of, even if someone else is supposed to do it. You don’t want the IRS sending you a “friendly reminder.”

Tax Implications and Planning Tricks

Every dollar you withdraw for your RMD is taxed as ordinary income. That means it gets added on top of your Social Security and any other income sources you have, which can push you into a higher tax bracket. For those of us who worked hard to build a nest egg, it’s frustrating to see taxes nibble away at it year after year. But there are strategies to soften the blow.

One of my favorite options is the Qualified Charitable Distribution (QCD). Once you’re 70½ or older, you can donate up to $100,000 per year directly from your IRA to a qualified charity. The amount you give counts toward your RMD but isn’t included in your taxable income. It’s a win-win—you help a cause you care about, and you keep your tax bill in check. It’s like getting to be generous and strategic at the same time.

Another approach is Roth conversions before you reach RMD age. If you convert part of your traditional IRA into a Roth IRA during your early 60s, you’ll pay taxes now at possibly lower rates, and those funds won’t be subject to RMDs later. I like to think of it as “paying the tax toll before the rates go up.”

Coordinating RMDs With Other Income

Timing your RMDs is key. If you’re already drawing Social Security, pension income, or investment income, adding RMDs on top could push you into a higher tax bracket. That’s why it’s smart to plan withdrawals in a way that balances your income streams.

Some retirees take their RMDs monthly as part of a steady “retirement paycheck,” while others prefer one lump sum at the end of the year. I personally like spreading it out quarterly. It feels more like regular income and less like a mandatory chore. Plus, it keeps my budget consistent without suddenly adding a big chunk of taxable income in December.

And speaking of December, here’s a tip: don’t wait until the last minute to process your RMD. Financial institutions get swamped at year’s end, and delays can happen. If your distribution doesn’t clear by December 31, even if you requested it, the IRS still counts it as a missed RMD. Not exactly holiday cheer.

What Accounts Are Affected

RMDs apply to most tax-deferred retirement accounts, Traditional IRAs, SEP IRAs, SIMPLE IRAs, and 401(k)s. The big exception is Roth IRAs, which don’t have RMDs during your lifetime. That’s one of the reasons Roths are so popular. You’ve already paid taxes on the contributions, so the government doesn’t come knocking later.

However, if you inherit a Roth IRA, you might still face RMD requirements depending on when the original owner passed away and your relationship to them. The SECURE Act changed those rules too, generally requiring inherited IRAs to be emptied within 10 years for most non-spouse beneficiaries. It’s enough to make your head spin, but at least the Roth withdrawals remain tax-free.

The Psychological Side of RMDs

Let’s be honest, there’s something emotionally odd about being forced to take money out of your savings. For decades, we’ve been told to save, save, save. Then suddenly, the rules flip, and we’re required to spend. I’ve had more than one retiree tell me it felt “wrong” to dip into their nest egg, even though they knew it was time.

But here’s the thing: RMDs are part of a healthy financial rhythm in retirement. They ensure your savings serve their purpose:to fund your life, not just sit in an account. It’s like finally cashing in all those airline miles you hoarded but never used. Enjoy it! After all, you earned it.

If you have more than you need, that’s where strategic gifting, charitable giving, or legacy planning can come in. RMDs can fund grandkids’ college accounts, home renovations, or that long-overdue trip to Italy. I like to remind myself that my retirement accounts weren’t meant to be a museum exhibit. They’re there to help me live well.

How to Keep It Simple

The easiest way to manage RMDs is to automate them. Most financial institutions will let you set up recurring distributions so you never miss a deadline. Just make sure you review the amounts annually, since your RMD changes each year as your balance and life expectancy factor change.

I also recommend keeping a running list of all your retirement accounts. It’s easy to forget an old 401(k) from a job you left decades ago. If you do, you could accidentally miss an RMD, which brings us back to that nasty penalty. Consolidating accounts, when possible, can make life a lot simpler. No regrets!

The Bottom Line

RMDs are one of those unglamorous but crucial parts of retirement life. You can’t avoid them, but you can definitely outsmart them. By planning ahead, coordinating with your other income, and understanding the tax implications, you can turn RMDs from a headache into a well-managed routine.

When I first started taking mine, I grumbled a bit (okay, maybe more than a bit). But now, I treat it as an annual check-in on how my retirement plan is working. It’s a reminder that my years of saving are finally paying off—literally. And if the IRS wants to take its piece of the pie, well, I’ll just make sure there’s still plenty left for me and Susan to enjoy.

So here’s my advice: pour yourself a good cup of coffee, review your accounts, and make friends with your RMDs. Like that neighbor who always borrows your tools, they’re not going away—but with the right attitude, you might even learn to live with them.

Don’t wait until it’s too late, get your financial house in order today!

Happy retirement planning!