RMDs explained: the withdrawals the IRS makes you take

The formula is simple: your account balance on December 31 of the prior year, divided by an IRS life-expectancy factor from the Uniform Lifetime Table. At 75 the factor is 24.6, so a $1,000,000 IRA forces a withdrawal of about $40,650 — fully taxable. The factor shrinks each year, so the required percentage rises with age: roughly 3.8% at 73, 4.9% at 78, 6.3% at 83.

Miss an RMD and the penalty is 25% of the shortfall (reduced to 10% if corrected promptly) — still one of the sharper penalties in the tax code, even after SECURE 2.0 softened it from the old 50%.

The trap is stacking: RMDs pile on top of Social Security and pensions, which can push you into higher brackets, make more of your Social Security taxable, and trigger Medicare IRMAA surcharges two years later. Large pre-tax balances can turn into a late-70s tax wave that surprises people who 'did everything right' by deferring — a $2 million IRA at 75 forces over $80,000 of taxable income in year one, rising from there if markets cooperate.

• Spend pre-tax dollars earlier — filling lower brackets in your 60s shrinks the balance RMDs will be computed on.
• Roth conversions in low-bracket years — each dollar converted is taxed once now and never subject to RMDs again (Roth IRAs have no lifetime RMDs; since 2024, Roth 401(k)s don't either).
• Qualified charitable distributions (QCDs) — after 70½, giving directly from an IRA to charity counts toward your RMD without touching taxable income.
• Still working past RMD age? Your current employer's 401(k) can be exempt until you retire (if the plan allows and you own under 5% of the company).

Each strategy has trade-offs that depend on your numbers. The useful move is to project RMDs year by year a decade ahead — the tax wave is visible long before it breaks, and the cheapest interventions all happen early.