What Is an RMD? What Retirees Need to Know About Required Minimum Distributions

If you're planning for retirement—or already there—there’s lots of IRS rules you need to know. One of those is: Required Minimum Distributions, or RMDs.

RMDs determine when and how much you must withdraw from your retirement accounts each year. Understanding how they work can help you avoid unnecessary taxes and penalties—and keep your retirement strategy on track. Here's a simple breakdown of what you need to know.

What Is a Required Minimum Distribution (RMD)?

An RMD is the minimum amount the IRS requires you to withdraw annually from certain tax-deferred retirement accounts—like traditional IRAs and 401(k)s—starting at a specific age.

Why? Because these accounts have grown tax-deferred, and eventually, Uncle Sam wants his share. When you begin taking distributions, that money becomes taxable income.

When Do RMDs Start?

This is where it gets tricky—because the rules have changed in recent years.

• If you were born before 1960, your RMDs begin at age 73.

• If you were born in 1960 or later, your RMDs begin at age 75.

So, if you turn 73 this year (2025), it’s go time.

How Are RMDs Calculated?

Your annual RMD is based on:

1. The balance of your retirement account as of December 31 of the previous year.

2. A life expectancy factor determined by the IRS.

The math can get technical—but that’s why having a financial advisor makes this easier. At Luken Wealth, we handle RMD calculations for our clients and help them make strategic withdrawal decisions.

What Happens If You Miss an RMD?

Missing your RMD used to come with a hefty 50% penalty. Today, the penalty is:

• 25% of the amount you should have withdrawn

• 10% if corrected quickly

Still—missing an RMD is costly, and it’s entirely avoidable. With the right planning, you’ll never have to worry about it.

Let Us Help You Stay On Track

RMDs are a critical part of your retirement income strategy. Missing them can create stress and tax consequences, but done right, they can support your long-term financial goals. 

Have Questions About RMDs?

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