For individuals reaching or exceeding the age of 73 in 2026, the Internal Revenue Service mandates withdrawals from any traditional tax-deferred retirement accounts, excluding Roth IRAs. These withdrawals, known as Required Minimum Distributions (RMDs), represent taxable amounts that retirees must systematically withdraw from qualified retirement funds. The intent behind this regulation is to ensure that deferred tax on retirement savings is eventually collected.
The calculation of an RMD is based on the account balance as of December 31 of the prior year. To obtain this figure for any retirement account, account holders can consult their brokers or custodians, who provide exact valuations. However, the percentage required to be withdrawn varies according to age: the older the account holder, the higher the obligatory withdrawal percentage.
For a tangible example, consider an individual possessing $462,410 in a qualifying retirement account, a value aligned with the average retirement holdings reported for Americans aged 75 and above in 2022 according to Federal Reserve consumer finance data. The RMD percentages and corresponding amounts increase progressively as one ages. At age 73, the required distribution is approximately 3.77% of the account, translating to a withdrawal of $17,449.43.
This figure rises with age in both absolute dollar value and as a proportion of the total account balance, reflecting the IRS's intent to collect the delayed tax revenue during the expected shorter remaining lifespan. By age 75, the RMD rate increments to 4.06%, or $19,797.15. Ages 80 and 85 see this value increase substantially to 4.95% ($22,891.58) and 6.25% ($28,900.63) respectively. At age 90, an even larger portion, 8.20%, equating to $37,902.46, is mandated as a minimum distribution.
It is essential to note that Roth IRAs are exempt from these requirements since qualified distributions from such accounts are not subject to taxation. This exception underlines the distinct tax treatment Roth accounts receive compared to traditional tax-deferred plans.
Withdrawal timelines are precise yet offer some flexibility. Except for the initial RMD—due in the tax year the individual turns 73—all subsequent yearly distributions must be completed by December 31 of the respective year. The first RMD can be delayed until April 1 of the year following the year one turns 73. While this deferral may be advantageous in some scenarios, it results in two distributions owed within the same calendar year, potentially elevating taxable income to a higher bracket.
Account holders have latitude in meeting or exceeding the minimum requirement; withdrawing amounts beyond the RMD minimum is permissible. Still, increased withdrawals enhance the year's taxable income, which could impact tax planning and liabilities.
An additional consideration is the form of the withdrawal. Rather than taking cash, owners may elect an "in-kind" distribution, where securities or investment holdings within the account are transferred directly into a non-retirement brokerage account. The value of such distributions is assessed on the date of transfer, allowing for diversified distribution methods beyond simple cash withdrawals.
The IRS regulations do not stipulate that the total sum of the RMD must be taken at one time. Withdrawals can be spread throughout the calendar year according to individual preference or financial strategy, as long as the full minimum amount is withdrawn by the deadline. Failure to comply with these rules exposes taxpayers to significant penalties, emphasizing the importance of careful planning and adherence.
Understanding the mechanics of RMDs, including their calculation, deadlines, methods, and tax implications, is critical for retirees managing their financial and tax obligations. The example of a $462,410 balance serves as a practical reference reflecting common retirement asset levels, underscoring the tangible impact of tax policies on retirement income.