What Are RMDs?
Required Minimum Distributions (RMDs) are the minimum amount the IRS requires you to withdraw annually from tax-deferred retirement accounts starting at age 73 (under current law as of 2025). The IRS deferred your taxes for decades while the money grew — RMDs are the mechanism by which they eventually collect those taxes.
Accounts subject to RMDs:
- Traditional IRA
- 401(k), 403(b), 457(b) plans (including your KC 401k)
- SEP IRA, SIMPLE IRA
- Inherited IRAs (special rules apply)
Accounts NOT subject to RMDs (during the original owner's lifetime):
- Roth IRA
- Roth 401(k) — starting in 2024 under SECURE 2.0 Act
How RMDs Are Calculated
Your RMD for each account is calculated as:
Account balance (Dec 31 of prior year) ÷ IRS Life Expectancy Factor
The IRS Uniform Lifetime Table provides life expectancy factors based on your age. At age 73, the factor is approximately 26.5, meaning you'd withdraw about 1/26.5 = 3.77% of your balance. The percentage increases each year as the life expectancy factor decreases.
The Penalty for Missing an RMD
Under current law, failing to take your RMD results in a 25% excise tax on the amount not withdrawn (reduced to 10% if corrected within the "correction window"). This is on top of normal income taxes when you do eventually withdraw. Missing RMDs is one of the more expensive retirement mistakes — your plan custodian may send reminders, but the responsibility is ultimately yours.
Strategies to Manage RMDs
Roth Conversions Before Age 73
Converting traditional IRA or 401(k) funds to a Roth IRA before RMD age reduces the balance subject to RMDs. You pay tax on the conversion, but Roth IRAs have no RMDs and provide tax-free withdrawals. This strategy is most effective in lower-income years between retirement and Social Security/RMD age.
Qualified Charitable Distributions (QCDs)
If you're charitably inclined and age 70½ or older, you can donate up to $105,000/year (2025) directly from your IRA to a qualified charity. This QCD counts toward your RMD but is excluded from your taxable income — a significant tax advantage over withdrawing the money and then donating it.
Still Working at 73?
If you're still working at 73 and don't own more than 5% of the company, you may be able to delay RMDs from your current employer's 401(k) plan (not IRAs) until you retire. This doesn't apply to old 401(k) accounts from previous employers.