---
title: RMD (required minimum distribution) — what it means and why it matters | Allocate AI
description: The minimum amount you must withdraw from traditional retirement accounts each year once you reach age 73, whether you need the money or not.
canonical: https://allocateai.io/glossary/rmd
site: Allocate AI — https://allocateai.io
---

# RMD (required minimum distribution)

The minimum amount you must withdraw from traditional retirement accounts each year once you reach age 73, whether you need the money or not.

A required minimum distribution is the government's way of finally collecting tax on money that has grown untaxed for decades. Starting at age 73 (75 for people born in 1960 or later), you must withdraw at least a set amount each year from traditional 401(k)s, traditional IRAs, and similar pre-tax accounts. The withdrawal is taxed as ordinary income. Roth IRAs and, since 2024, Roth 401(k)s have no RMDs during your lifetime.

The amount is your account balance at the end of the prior year divided by a life-expectancy factor from an IRS table. At 73 the factor is 26.5, so a $1,000,000 balance requires a withdrawal of about $37,700. The factor shrinks each year, so the required percentage rises over time.

Missing an RMD is expensive: the penalty is 25% of the amount not withdrawn, reduced to 10% if corrected quickly. The first one can be delayed until April 1 of the following year, but that means two RMDs in one tax year, which can push income into a higher bracket.

RMDs shape planning decades earlier. Large traditional balances mean large forced withdrawals, which can raise Medicare premiums and make more of Social Security taxable. That is one argument for Roth conversions in lower-income years between retirement and 73.

The common mistake is forgetting about old accounts. Each traditional IRA can be aggregated, but each 401(k) has its own RMD that must be taken from that plan.

## Related terms

- [401(k)](https://allocateai.io/glossary/401k) — An employer-sponsored retirement account you fund from your paycheck, with tax advantages and a yearly contribution limit of $24,500 (2026).
- [IRA (individual retirement account)](https://allocateai.io/glossary/ira) — A retirement account you open yourself at a brokerage, separate from any employer, with a $7,500 yearly limit (2026) and traditional or Roth tax treatment.
- [Roth 401(k)](https://allocateai.io/glossary/roth-401k) — A version of the 401(k) where contributions are taxed now and every dollar, including growth, comes out tax-free in retirement.
- [Traditional vs Roth](https://allocateai.io/glossary/traditional-vs-roth) — The choice between paying tax on retirement savings later (traditional) or now (Roth); it usually comes down to your tax rate today versus in retirement.

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