Required Minimum Distributions (RMDs) are the minimum amounts that a retirement plan account owner must withdraw annually starting in the year they reach 72 (or 70½ if you reach 70½ before January 1, 2020) or, if later, the year in which they retire. The RMD rules apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and certain other retirement plans.

RMDs are calculated by dividing the prior year-end fair market value of the retirement account by a life expectancy factor that the IRS publishes in its tables. The IRS provides different tables depending on the situation, such as the Uniform Lifetime Table for most account owners, the Joint Life and Last Survivor Expectancy Table for account owners whose sole beneficiary is their spouse and is more than 10 years younger, and the Single Life Expectancy Table for beneficiaries of inherited accounts.

The amount of the RMD is included in your taxable income for the year and may be subject to federal income tax. However, RMDs are not subject to the 10% early withdrawal penalty, even if you are under the age of 59½. It’s important to plan for the tax impact when you take your RMDs, as they can push you into a higher tax bracket and affect other aspects of your financial situation, such as Social Security benefits and Medicare premiums.

If you do not take your RMD, or if you withdraw less than the required amount, you may be subject to a 50% excise tax on the amount that was not withdrawn as required. This penalty is significant, so it is crucial to ensure that you meet your RMD obligations each year. If you miss taking your RMD, you can file IRS Form 5329 and request a waiver if the shortfall was due to a reasonable error and you are taking steps to rectify it.

Yes, you can delay your first RMD until April 1 of the year following the year you turn 72 (or 70½ if you reached 70½ before January 1, 2020). This is known as your required beginning date. However, if you choose to delay your first RMD, you will need to take two RMDs in that year: one for the year you turned 72 (or 70½) and one for the current year. This can significantly increase your taxable income for that year.