RMD Basics: What Retirees Need To Know About RMDs?

You’ve probably heard the term “RMD” — short for Required Minimum Distribution — but may not be entirely sure what it means. In simple terms, RMDs are how the IRS ensures you eventually pay taxes on your tax-deferred retirement savings. They can significantly affect your retirement income strategy, so it’s important to understand how they work.

How Are Retirement Accounts Taxed?

When you contribute to a 401(k), 403(b), 457, or SIMPLE IRA at work, the money is typically invested before taxes are withheld. Contributions to Traditional or SEP IRAs are usually tax-deductible. These pre-tax contributions grow tax-deferred, meaning you don’t pay taxes on dividends, interest, or capital gains along the way. This helps your investments grow faster — but the tax bill comes later.

Since these accounts were funded with untaxed dollars and have grown tax-deferred, the IRS taxes withdrawals at ordinary income rates in retirement. Most people can start making withdrawals at age 59½.

What Are Required Minimum Distributions?

To ensure taxes are eventually paid, the IRS requires retirees to start taking distributions — and paying taxes on them — once they reach a certain age. While many retirees begin withdrawals earlier, those who haven't must start once they hit their RMD age.

What Is My RMD Age?

• If you were born between 1951 and 1959, your RMD age is 73.

• If you were born in 1960 or later, your RMD age is 75.

For example, someone born on July 4, 1953, would turn 73 in 2026 and need to take their first RMD that year.

How Much Do I Have to Withdraw?

The IRS uses a simple formula: divide your account balance from December 31 of the previous year by your life expectancy factor from the IRS’s Uniform Lifetime Table.

Let’s say your IRA had a balance of $100,000 on December 31, 2025, and your life expectancy factor is 26.5. Your RMD would be:
$100,000 ÷ 26.5 = $3,773.58.

When Do I Take My RMD?

You can take your RMD in a lump sum, monthly installments, or any schedule you prefer — as long as the full amount is withdrawn by year-end.

In your first RMD year only, the IRS gives you until April 1 of the following year to take the distribution. Every year after that, your RMD must be taken by December 31.

What Retirement Accounts Are Included in Rmd calculations?

Many retirees hold multiple retirement accounts. To calculate your total RMD, add the December 31 balances of all applicable accounts — Traditional IRAs, SEP IRAs, 401(k)s, etc.

For example:

• IRA #1: $100,000

• IRA #2: $150,000

• 401(k): $200,000
  Total balance = $450,000

Important: Roth IRAs are not subject to RMDs. Because contributions are made with after-tax dollars and growth is tax-free, the IRS doesn’t require withdrawals.

What If I Miss the Rmd Deadline?

Missing the RMD deadline can be costly. The IRS imposes a penalty of 50% of the amount you failed to withdraw.

If your 2025 RMD is $6,000 and you don’t take it by December 31, you’ll owe the $6,000 plus a $3,000 penalty. At Sequoia Advisor Group, we’ve developed a process to help clients stay on schedule and avoid these penalties.

how should i Manage my Retirement Income?

Many retirees discover that their RMDs exceed what they need for daily expenses. That means paying taxes on money you don’t immediately need — creating inefficiencies in your retirement plan. Fortunately, there are strategies to reduce this burden.

What is a Roth IRA Conversion?

A Roth conversion lets you move money from a traditional IRA to a Roth IRA. You’ll pay taxes on the converted amount, but the benefits can be significant:

• Future growth is tax-free

• Roth accounts are not subject to RMDs

• Your future RMDs are reduced

This can offer greater flexibility and long-term tax savings.

what are Qualified Charitable Distributions (QCDs)?

If you’re charitably inclined, a QCD allows you to direct up to $100,000 per year from your IRA to a qualified charity. The distribution counts toward your RMD but isn’t included in your taxable income — a win-win for you and your cause.

Final Thoughts

RMDs are a key part of retirement income planning. A thoughtful strategy can help you avoid penalties, reduce taxes, and align your withdrawals with your lifestyle goals.

At Sequoia, we help clients create personalized retirement plans that consider RMDs and much more — helping you enjoy a future that’s financially sound and personally fulfilling.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. 

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply. 

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.