Retirement Accounts
How Much to Save for Retirement by Age 30/40/50
By age 30, a common rule of thumb suggests you should have roughly one year of your salary tucked away for retirement. By 40, that target often...
Required Minimum Distributions (RMD) Explained
Once you reach about age 73, the government generally expects you to start pulling a certain amount of money out of most retirement accounts each year, whether you need the cash or not. The required minimum distribution, or RMD, is that forced withdrawal, and missing it can trigger a penalty that used to run as high as 50 percent of the amount you should have taken. That steep penalty was softened in recent years, but it is still painful enough that retired savers should plan around it.
The rule applies to traditional, workplace, and similar tax-deferred accounts. It does not apply to a Roth IRA during your lifetime, which is one reason that account type gets so much attention near retirement.
The age keeps moving, so check your own year
The starting age has shifted more than once, creeping from 70 and a half to 72 and then to roughly 73 for people born in certain windows, with later birth years facing an even higher threshold. A person who turned 72 before the change may have had to start already, while a younger neighbor born a few years later gets a longer grace period. Treat any single number you read online as a prompt to confirm your specific birth-year rule, not as gospel.
How the amount is calculated
The withdrawn sum is typically your account balance from the end of the prior year divided by a life-expectancy factor published in government tables. A balanced account of, say, $500,000 might produce a first-year draw of roughly $18,000 to $20,000, though the exact figure moves with the table and your age. The balance grows on its own each year, but so does the divisor, so the percentage you pull usually sits somewhere between 3 and 5 percent and rises slowly as you age.
Compare this with the freedom of a taxable brokerage account, where you decide entirely when to sell. The RMD forces the issue on a schedule you do not control, which is either a relief (it makes you spend down a pile you might otherwise hoard) or an annoyance (it creates taxable income you did not ask for in a low-spending year).
Accounts that escape the rule
A Roth IRA is exempt while you are alive, which lets it keep growing untouched as a tax-free legacy for heirs. Health savings accounts and most life insurance vehicles are outside the scope too. Knowing which buckets are shielded helps you decide where to spend first in retirement: many retirees drain taxable and traditional accounts before touching a Roth, so the Roth can stretch the longest.
Five steps to stay on the right side of the rule
- Mark your starting year on a calendar the moment you confirm your birth-year threshold.
- Ask the account custodian whether they will calculate the RMD for you, since some do and some leave it to you.
- Set the withdrawal to land before the year-end deadline, not on December 31 at noon.
- If you hold multiple traditional accounts, remember you can total the RMDs and take them from any one of them, but workplace plans usually must be drawn separately.
- Keep a note of the amount taken in case your tax software or preparer needs it.
Watch the fine print on deadlines
The first distribution carries a quirk worth knowing: you may delay it until April 1 of the year after you reach the starting age, but if you do, you then owe two withdrawals in that following year, which can pile taxable income higher than planned. The bigger trap is simply forgetting, because the penalty for a missed or short RMD, while reduced, still bites into the very savings you spent decades building. Inherited accounts follow a different and often stricter schedule, so a beneficiary who rolls an inherited traditional IRA into their own name by mistake can trigger a much faster payout than the law allows.
Using the withdrawal to your advantage
A forced distribution is not purely a burden. Some retirees use the annual pull to cover living costs, others reinvest it in a taxable account for heirs, and a few steer it toward charity through a qualified charitable distribution that can satisfy the RMD without showing up as taxable income. The key is treating the RMD as a fixed line in your year, planned for rather than discovered in December.
