Required Minimum Distributions (RMDs) are the minimum amount that a retiree must withdraw from retirement accounts each year. They apply to traditional IRAs, SEP IRAs, SIMPLE IRAS, 401(k)s and 403(b)s. They do not apply to Roth IRAs or Designated Roth accounts in a 401(k) or 403(b). The distribution is taxed as ordinary income in the year it is withdrawn.

The SECURE Act of 2020 pushed the age at which you are required to start taking RMDs from 70½ to 72. SECURE 2.0 pushed it further to ages 73-75 depending on the year in which you are born. The calculation for the amount of an RMD is based on the account balance at the end of the previous year and a life expectancy factor determined by IRS tables. It starts around 4% of the account balance and increases as life expectancy decreases. The first RMD must be taken by April 1^st of the year after the account owner turns the applicable RMD age and future RMDs must be taken by December 31^st of each year. The penalty for failing to take an RMD is 25% but can be reduced to 10% if corrected within two years.

The rules around RMDs for Inherited IRAs were changed significantly by the SECURE Act. Prior to 2020, non-spouse beneficiaries were able to stretch distributions from an Inherited IRA over their lifetime with RMDs based on their life expectancy. The SECURE Act instituted the 10-Year Rule where non-spouse beneficiaries must withdraw the full balance of the Inherited IRA within 10 years. IRAs inherited prior to 2020 are grandfathered into the old rules and not subject to the 10-Year Rule. Certain types of beneficiaries, known as Eligible Designed Beneficiaries (EDBs), are also not subject to the 10-Year Rule and may take RMDs based on their life expectancy. These beneficiaries include the spouse or minor children of the deceased IRA owner, disabled or chronically ill individuals, and individuals not more than 10 years younger than the IRA owner.  Minor children are subject to the 10-Year Rule once they reach the age of majority.

The original law did not offer guidance on RMDs for Inherited IRAs but the IRS recently issued final rules stating RMDs must be taken from Inherited IRAs each year throughout the 10-year period. However, this does not go into effect until 2025. This applies to both Inherited IRAs and Inherited Roth IRA. Withdrawals of contributions from Inherited Roth IRAs are tax free. Withdrawals of earnings from an Inherited Roth IRA are also tax free unless the account is less than 5-years old at the time of the withdrawal.

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