Required Minimum Distributions (RMDs) Overview - Individuals generally must take their first RMD by April 1st of the year after turning 73, with subsequent RMDs required by December 31st each year; those born after 1960 have their first RMD at age 75 [1][2][3] - Failure to take the required distribution may result in a 25% tax on the undistributed amount [2] - RMD calculation involves dividing the total balance of tax-deferred retirement accounts (IRA, 401k, 403b) at the end of the previous tax year by the IRS's life expectancy factor for the individual's age [1][3] - Financial institutions typically calculate and inform clients of their RMD amount by the end of December [7] RMD Exceptions and Special Cases - An exception exists for individuals still working at the company sponsoring their 401k plan; they may not need to take RMDs until retirement [9] - Higher investment returns lead to higher RMDs, as the calculation is based on the account's value at the end of the previous year [10][11] - All individual retirement accounts (IRAs) are now viewed as one giant massive IRA for RMD purposes [13] - Aggregate RMDs from all IRAs must be fully satisfied before any distribution from any IRA can be converted into a Roth IRA, otherwise a 6% excess contribution penalty may apply [13][14] Inherited IRAs and the 10-Year Rule - Beneficiaries inheriting an IRA must empty the account within 10 years of the original owner's death [14] - If the original IRA owner died before their Required Beginning Date (RBD), beneficiaries do not have to take RMDs during years 1 through 9 but must empty the account by the end of the 10th year [16] - If the original IRA owner died on or after their RBD, beneficiaries must take an annual stretch distribution during years 1 through 9 and then take out the remaining balance by the end of the 10th year [17] Qualified Charitable Distributions (QCDs) - Individuals can use their RMD to make a qualified charitable distribution (QCD) to a nonprofit organization [18] - The money must go directly from the IRA to the nonprofit to avoid being counted as taxable income [18][19] - There are limits to QCDs, such as up to $100,000 that can be donated [19]