Sometimes Uncle Sam can be a really nice guy. He lets you save money in tax-deferred accounts such as IRAs, 401(k)s, and the like. You get to watch that money grow over the years, accumulating in value, while not paying taxes on the gain. Uncle Sam just waits patiently on the sidelines, not collecting taxes on the earnings. However, Uncle Sam isn’t going to wait forever, and that is where the Required Minimum Distribution comes in.
What Is an RMD?
What if you never had to tap into your IRA? What if you had enough money from pensions and taxable accounts so that you could just let your IRA sit, unused, forever? Uncle Sam would never get his tax money, would he? He has been a nice guy up to this point, but he has his limits. He wants to see some tax revenue, and he has decided that age 73 is the latest he is willing to wait to start seeing it. RMDs ensure that deferred taxes are eventually paid.
When Do You Have to Take an RMD?
Once you turn 73, you are required to start taking money out of your IRA. Many people will have already been taking withdrawals and paying taxes on the earnings, but if you have not, RMDs must begin at age 73. The first RMD can be delayed until April 1 of the year after you turn 73, but all subsequent RMDs must be taken by December 31 of each year.
How Much Must You Withdraw?
The RMD is the minimum amount that Uncle Sam says you must take from your tax-deferred accounts each year. The figure is based on the value of your tax-deferred accounts on December 31 of the prior year and calculated using life-expectancy factors from the IRS tables. If your spouse is more than 10 years younger than you, a different factor is used, which allows for a smaller RMD and helps your account last longer. While many retirees withdraw more than the RMD for living expenses, it is important to meet at least the minimum to avoid penalties.
How to Calculate Your RMD
To calculate your RMD, gather your IRA and 401(k) statements showing December 31 balances. Add the balances together for each person individually—do not combine spouses’ accounts. Divide the year-end balance by the life-expectancy factor from the IRS RMD tables for 2026. You can also use the FINRA RMD calculator or IRS worksheets to determine your exact RMD. This method ensures your withdrawals are accurate and comply with IRS rules.
Penalty for Not Taking Your RMD
The penalty for not taking your RMD in 2026 is 25% of the amount that should have been withdrawn. If you correct the shortfall promptly and file IRS Form 5329, the penalty can be reduced to 10%. Making an honest error may allow for a waiver under IRS procedures, but approval is not guaranteed. Because the penalty is substantial, it is essential to take your RMD each year to avoid excise taxes.
Why RMDs Exist
The money in your IRAs and 401(k)s grows tax-deferred for many years. Uncle Sam allows this growth, but wants to collect taxes eventually. RMDs ensure that deferred taxes are paid during your retirement years. Even if you are withdrawing more than the RMD for living expenses, you must meet the minimum to stay compliant. Note that Roth IRAs do not require RMDs during the owner’s lifetime, although beneficiaries must take distributions after the owner passes away.
In Summary
Required Minimum Distributions exist to make sure taxes on retirement accounts are eventually paid. For 2026, the starting age is 73, calculation follows IRS life-expectancy tables, and the penalty for missing an RMD is 25% (potentially reduced to 10% if corrected). Meeting your RMD ensures compliance and avoids substantial IRS penalties while allowing your retirement savings to continue growing tax-deferred.
Michele Clark
Michele has more than 25 years experience in financial services and has developed a specialization in working with people who are starting to seriously think about their retirement or who are retired and facing all of the complex planning issues one faces during this time.
She works with clients to coordinate decisions around investments, retirement accounts, Social Security, funding health care, tax planning, cash-flow, maximizing employer benefits, charitable gifting strategies and estate planning.
Before joining Acropolis Investment Management, Michele was the founder and managing principal of Clark Hourly Financial Planning and Investment Management for nearly nine years with an additional sixteen years at banks and investment firms.
Michele has been quoted in such online and print media outlets as The Wall Street Journal, Money Magazine, USA Today, Market Watch, US News & World Report, CNBC.com, AARP, St. Louis Post Dispatch, Fox Business, Forbes, Los Angeles Times, Financial Planning Magazine, St. Louis Public Radio, Yahoo Finance, St. Louis Magazine, and others.
Michele earned her B.A. from Purdue University. She is a CERTIFIED FINANCIAL PLANNER® practitioner, obtained the Chartered Retirement Planning Counselor (CRPC®) designation from the College for Financial Planning, and is a NAPFA Registered Investment Advisor.
Michele has volunteered her time for financial literacy outreach at Financial Planning Days, Money Smart Week, Habitat for Humanity and others.
Michele has served on the Board of Directors of the Financial Planning Association of Greater St. Louis since January 2014 and is Past President and currently serving as Chair of the Board.