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IRS Rules • RMD Calculations • Tax Management

Required Minimum Distributions: When the IRS Comes for Its Share

A plain-language guide to RMDs — when they start, how they're calculated, what happens if you miss one, and the strategies retirees use to manage the tax impact.

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Educational content only. Hafnia Insurance Services is not a CPA, tax advisor, or investment adviser. Always consult a qualified tax professional for your specific RMD calculation and strategy.

What Is an RMD?

The Tax Bill That Eventually Comes Due

A Required Minimum Distribution (RMD) is the minimum amount the IRS requires you to withdraw each year from most pre-tax retirement accounts once you reach a certain age. It exists because the government has been letting your retirement contributions grow tax-deferred for decades — and at some point, they want their share.

When you take an RMD, the amount counts as ordinary income for that year. You pay federal (and in most states, state) income tax on it at your normal rate.

You can always take more than the RMD. You just cannot take less.

When Do RMDs Start?

Age 73 — Rising to 75 in 2033

Under SECURE 2.0:

  • Age 73 is the current age at which RMDs begin (for anyone who turned 72 in 2023 or later, i.e., born 1951 or later).
  • Age 75 will be the new starting age beginning in 2033 (for anyone born in 1960 or later who reaches 75 after that date).

If you turned 72 in 2022 or earlier, the older rules already apply to you. Your CPA or plan administrator will confirm your specific starting year.

The First-Year Trap

Your first RMD has a special deadline: it can be taken any time before April 1 of the year after you turn 73. Every subsequent RMD is due by December 31 of the calendar year.

That sounds harmless until you do the math: if you defer your first RMD into the next calendar year, you will end up taking two RMDs in the same tax year — both your delayed first one and your regular second one. For most people, this stacks the income into a single year and pushes them into a higher tax bracket. For most retirees, taking the first RMD in the year you turn 73 (rather than deferring) is the cleaner play.

Which Accounts Have RMDs?

Pre-Tax Buckets Have Them. Roth Buckets Don't.

Subject to RMDs:

  • Traditional IRAs
  • SEP IRAs and SIMPLE IRAs
  • Traditional 401(k), 403(b), 457(b) plans
  • Pre-tax pension benefits
  • Most non-Roth annuity-held qualified balances

Not subject to RMDs (during the original owner's lifetime):

  • Roth IRAs
  • Roth 401(k), Roth 403(b) — RMD requirement was eliminated as of January 1, 2024 under SECURE 2.0
  • Health Savings Accounts (HSAs)

For inherited accounts, different rules apply — see the inherited IRA section below.

How RMDs Are Calculated

Account Balance ÷ Life Expectancy Factor

The RMD calculation has two inputs:

  1. Your account balance as of December 31 of the prior year.
  2. Your life expectancy factor from one of three IRS tables:
    • Uniform Lifetime Table (Table III) — used by most account owners
    • Joint Life and Last Survivor Table (Table II) — used when your sole beneficiary is a spouse more than 10 years younger than you
    • Single Life Expectancy Table (Table I) — used by certain inherited account beneficiaries

Your RMD = Prior year-end balance ÷ Applicable factor.

A simple example: A 75-year-old with a $500,000 traditional IRA balance on December 31, 2025, would use the Table III factor of 24.6 to calculate a 2026 RMD of approximately $20,325.

Each year the factor decreases (because life expectancy shrinks as you age), which is why RMDs as a percentage of the account grow over time. By age 85, the factor is around 16; by age 95, it's roughly 8.9.

Aggregation Rules

  • IRA RMDs can be aggregated. If you have multiple IRAs, you calculate the RMD for each one but can take the total from any single account.
  • 401(k) RMDs cannot be aggregated. Each employer-plan RMD must be taken from that specific plan.

This distinction matters for retirees with several accounts and is one reason consolidation (rolling old 401(k)s into a single IRA) often simplifies the RMD calculation.

See IRS Publication 590-B and Appendix B for the official tables.

Penalties for Missing an RMD

The Penalty Was Once Brutal. It's Still Significant.

Before SECURE 2.0, missing an RMD triggered a 50% excise tax on the amount that should have been withdrawn — one of the harshest penalties in the tax code.

Under current law (SECURE 2.0):

  • The base penalty is 25% of the missed amount.
  • The penalty drops to 10% if you correct the error within a 2-year window (take the missed RMD and file Form 5329).

You can also request a waiver of the penalty for a "reasonable error" — done by filing Form 5329 with a letter of explanation. The IRS frequently grants these, especially for first-time errors. But correction is faster and simpler than asking forgiveness.

The single best protection is automation: most custodians can set up automatic RMD calculations and distributions. Set it up once and you don't have to think about it.

Inherited Account RMDs

SECURE Act Changed Inherited IRAs in 2020

If you inherit a retirement account from someone other than your spouse, the rules now look very different than they used to.

For deaths after December 31, 2019:

  • Most non-spouse beneficiaries must fully empty the inherited account within 10 years of the original owner's death.
  • If the original owner had already started RMDs, the beneficiary must also take annual RMDs in years 1–9 and empty the account by year 10.
  • If the original owner had not yet started RMDs, no annual distributions are required during years 1–9 — but the account must still be fully distributed by the end of year 10.
  • Eligible designated beneficiaries (surviving spouses, minor children of the deceased, disabled or chronically ill individuals, or individuals not more than 10 years younger than the deceased) follow different, more favorable rules.

This is an evolving area — IRS guidance on inherited RMDs has been clarified multiple times since SECURE Act passage. Always confirm with your CPA before moving inherited dollars.

Strategies to Manage the Tax Impact

Six Levers Most Retirees Don't Use

1. Pre-RMD Roth Conversions

The single most powerful RMD-management strategy is to reduce your traditional IRA balance before RMDs begin. Years of partial Roth conversions during the low-tax window between retirement and age 73 can dramatically shrink your future RMD obligation. See our Roth Conversions page for more.

2. Qualified Charitable Distributions (QCDs)

If you are 70½ or older, you can direct up to $111,000 in 2026 ($222,000 for married filing jointly, with each spouse limited to $111,000 from their own IRA) directly from your IRA to a qualified charity. The amount counts toward your RMD but is excluded from your taxable income. SECURE 2.0 also added a one-time $55,000 option to fund certain charitable trusts.

QCDs are one of the most tax-efficient charitable strategies available — and one of the most underused.

3. RMD-Friendly Annuity Distributions

Some annuities allow penalty-free withdrawals up to the RMD amount each year, even during the surrender period. For qualified money held in a properly structured annuity, this means RMDs do not trigger surrender charges.

4. Qualified Longevity Annuity Contracts (QLACs)

A QLAC is a specific type of deferred income annuity that lets you set aside up to $210,000 (2026 limit, indexed) of qualified retirement funds with the income deferred to as late as age 85. The dollars inside a QLAC are excluded from RMD calculations during the deferral period, reducing your annual RMD until QLAC payments begin.

QLACs are specifically authorized by the IRS as an RMD-management tool. They are not a fit for everyone, but they can be useful for retirees who don't need the full RMD income now and want to ensure income later.

5. Spousal Strategies

If your sole IRA beneficiary is a spouse more than 10 years younger, you can use the more favorable Table II calculation — which results in lower RMDs.

6. Coordinating Across Accounts

If you have multiple traditional IRAs, you can take the entire combined RMD from a single account — including the one with the worst-performing investments or highest fees, effectively using the RMD as forced rebalancing.

Where Fixed Insurance Fits

Where We Sometimes Help

Hafnia Insurance Services does not run RMD calculations or file 5329s. Those belong with your CPA or plan administrator.

Where we sometimes come in:

RMD-friendly fixed indexed annuities. Most FIA contracts we work with allow RMD withdrawals during the surrender period without triggering surrender charges. This is particularly relevant for retirees who want indexed-credit growth on the bulk of a qualified balance while still meeting their annual RMD obligation. We confirm this language with the carrier before any recommendation.

Annuity income riders that can satisfy RMDs. A lifetime income rider can be structured — subject to the rider's terms and the carrier's claims-paying ability — so that the annual income amount automatically meets or exceeds the RMD requirement, converting an annual tax compliance task into a steady monthly paycheck.

QLACs for retirees with surplus RMD capacity. For clients with traditional IRA balances large enough that RMDs exceed their income needs, a QLAC can shift a portion of the balance out of the RMD calculation entirely until later in retirement — useful for managing IRMAA, Social Security taxation, and tax-bracket exposure.

RMDs from inherited IRAs. If you've inherited a traditional IRA subject to the 10-year rule, the question of how to invest the dollars while drawing them down over the next decade is real. A vehicle with index-loss protection on the principal — subject to contract fees and surrender charges — is one option among several.

These are tools, not strategies on their own. The right answer always starts with the tax math — which is your CPA's job.

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FAQ

Common Questions

December 31. Your first RMD has a one-time exception — it can be deferred to April 1 of the following year, but doing so creates a "two-RMD year." For most retirees, taking the first RMD in the year you turn 73 is cleaner.
No. You can take an RMD "in kind" — meaning you transfer shares of stock, bond funds, or other holdings from your IRA to a taxable account. The fair-market value at transfer counts as the distribution amount and is taxable as ordinary income, but no shares need to be sold. This can be useful if you don't want to liquidate during a market downturn.
Yes — for IRAs only. If you have multiple traditional IRAs, you calculate the RMD on each but can take the total from any combination. 401(k) RMDs are different: each plan's RMD must be satisfied from that specific plan.
For most employer-sponsored 401(k) and 403(b) plans, you can delay RMDs from your current employer's plan until the year you actually retire (the "still-working exception"). This does not apply to IRAs or to plans from former employers, and it does not apply if you own more than 5% of the business sponsoring the plan.
Roth IRAs have never required RMDs during the original owner's lifetime. As of January 1, 2024, the same rule now applies to Roth 401(k) and Roth 403(b) accounts. Inherited Roth accounts still have RMD-like requirements under the 10-year rule.
Yes — through a Qualified Charitable Distribution (QCD), if you are 70½ or older. You can direct up to $111,000 (2026) directly from your IRA to a qualified charity, and the amount counts toward your RMD without ever appearing in your taxable income. This is one of the most efficient charitable strategies for IRA owners.
File Form 5329 with the IRS to report the shortfall. Take the missed amount as soon as possible. Under SECURE 2.0, the penalty is 25% of the missed amount, reduced to 10% if you correct it within 2 years. The IRS often grants waivers for reasonable errors.
Verify Anything You Read Here

Primary Sources

  • IRS Publication 590-B — Distributions from Individual Retirement Arrangements
  • irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
  • irs.gov/forms-pubs/about-form-5329 — penalty waiver form
  • Your plan custodian or IRA provider — they can confirm your specific RMD amount and table

If anything you read here conflicts with a primary source, the primary source wins. Tell us — we'll fix it.

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Have Questions About Where Your RMD Dollars Should Go?

Once your CPA confirms your RMD amount, the next question is whether the dollars left after the RMD should sit in the same account, move to something protected, or fund a different goal. If a fixed insurance solution might be one piece of that answer, we're glad to walk through your situation in a 30-minute call. No cost. No pressure. No obligation.

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