Once you reach the age of 73, you are obligated to take annual Required Minimum Distributions (RMDs) from your retirement accounts. The calculation of your RMD involves dividing the value of each Traditional IRA by a life expectancy factor set by the IRS. It is necessary to compute the RMD for each individual IRA, but you have the option to withdraw the total RMD amount from either one specific IRA or a combination of multiple IRAs. However, RMDs from Qualified Retirement Plans or Inherited IRAs must be calculated separately and can only be withdrawn from their respective accounts. Roth IRAs do not require RMDs unless you have established an inherited/beneficiary IRA.

Your initial RMD must be taken by April 1 of the year following your 73rd birthday, and subsequent RMDs must be withdrawn by December 31 of each subsequent year. Failure to take your RMD results in a penalty. Under the new SECURE 2.0 regulations, effective for RMDs in 2023, the penalty for missing an RMD is reduced from 50% to a 25% excise tax on insufficient or late withdrawals. If the RMD is corrected promptly, the penalty can be further reduced to 10%.

The total amount of your RMD is subject to taxation as ordinary income at your personal federal income tax rate, with potential state taxes also applicable. Nondeductible IRA contributions are not taxed, but any earnings are subject to taxation if you have filed an IRS Form 8606. It is important to adhere to the RMD deadlines to avoid penalties and ensure compliance with the tax regulations outlined by the IRS.