Understanding RMD From 401k: How Required Minimum Distributions Can Impact Your Taxes
If you’ve spent decades building retirement savings in a 401(k), you may not realize that the IRS has plans for that money too. Once you reach a certain age, federal law requires you to start withdrawing from tax deferred retirement accounts—whether you need the cash or not. These forced withdrawals, called required minimum distributions, can create unexpected tax consequences that catch many retirees off guard.
Understanding how RMD rules apply to your 401 k is essential for protecting your retirement income and keeping more of what you’ve earned. In this guide, we’ll break down exactly how RMDs work, when they start, and the strategies Revolutionary Wealth uses to help clients minimize their lifetime tax burden.
Key Takeaways
RMDs from 401(k)s generally must begin at age 73 for most people today, and each employer sponsored retirement plan requires its own separate RMD calculation—you cannot combine them like you can with traditional IRAs.
Every dollar withdrawn as an RMD counts as ordinary income, which can push retirees into higher federal income tax brackets, increase Social Security taxation, and trigger Medicare IRMAA surcharges.
The “still-working exception” allows some employees to delay RMDs from their current employer’s 401(k), but this typically does not apply if the account holder owns 5% or more of the business sponsoring the plan.
Proactive strategies like Roth conversions, QLACs, and coordinated distribution planning can significantly reduce future RMD amounts and total lifetime taxes.
Revolutionary Wealth specializes in helping pre-retirees and retirees build tax-smart RMD plans using multi-year projections and personalized withdrawal strategies.
What Is an RMD From a 401(k)?
A required minimum distribution RMD is the minimum amount the IRS mandates you withdraw each year from tax deferred account balances like traditional 401(k)s once you reach RMD age. These withdrawals exist because the government eventually wants to collect taxes on dollars that have grown tax free for decades inside your retirement plan.
For most people who haven’t started RMDs yet, the current RMD age is 73—a threshold established under the SECURE Act provisions in SECURE 2.0. If you were already taking RMDs under prior rules, you must continue following those requirements.
RMD rules apply to several types of retirement accounts:
Traditional 401(k)s and 403(b) plans
Traditional IRAs and SIMPLE IRA accounts
SEP IRAs and profit sharing plans
457(b) plans
These are all considered defined contribution plans, and each plan account is subject to its own RMD rules.
However, Roth IRA balances are exempt from RMDs during the IRA owner’s lifetime. Starting in 2024, Roth accounts within employer sponsored retirement plans (like Roth 401(k)s) also became exempt from lifetime RMDs under SECURE 2.0. If you are an IRA owner or have multiple 403(b) accounts, you must calculate the RMD separately for each account, but you can withdraw the total RMD from one or more of those accounts. In contrast, RMDs from 401(k) plans must be taken separately from each plan account.
Key terms to understand:
Tax deferred:Pre tax contributions and investment growth aren’t taxed until withdrawal
Ordinary income:RMD amounts are taxed at your regular income tax rates, not capital gains rates
After tax contributions:Some 401(k)s allow these, but the earnings still face RMD requirements
When Do 401(k) RMDs Start and How Are They Calculated?
Your first required minimum distribution is generally due for the calendar year you turn 73. However, you have the option to delay that first RMD until April 1 of the following year—this is called your required beginning date. These required minimum distribution requirements are set by the IRS and must be followed to avoid penalties.
The trade-off of delaying:If you push your first RMD to April 1, you’ll have to take two RMDs in the same calendar year—the delayed first RMD plus your second-year RMD due by December 31. This can spike your taxable income significantly. RMDs are taxed as ordinary income, and the amount you withdraw each year is added to your total taxable income, which may affect your tax bracket and other tax liabilities.
If you fail to withdraw the full RMD amount by the due date, the IRS may impose an excise tax of 25% on the shortfall, which can be reduced to 10% if corrected within two years. To avoid penalties, always ensure your RMD is withdrawn by the December 31 deadline each year, except for your first RMD, which is due by April 1 of the year after you turn 73.
The Still-Working Exception
If you’re still employed by the company sponsoring your workplace retirement plan and you own less than 5% of that employer, you may delay RMDs from that specific 401(k) until the year you actually retire. However:
This exception applies only to your current employer’s plan
Old 401(k)s from previous employers still require RMDs at age 73
Business owners with 5% or more ownership must begin taking RMDs regardless of employment status
Calculating Your 401(k) RMD
Each defined contribution plan requires its own RMD separately. Unlike IRAs, you cannot satisfy one 401(k)’s RMD with a withdrawal from another 401(k).
The RMD calculation follows this formula:
Account balance (as of December 31 of the previous year) ÷ Life expectancy factor = RMD amount
The IRS provides the life expectancy table in Publication 590-B, with most retirement plan account owners using the Uniform Lifetime Table. If your sole beneficiary spouse is more than 10 years younger, you’ll use the Joint Life and Last Survivor table instead.
Example:A 73-year-old with a $500,000 401(k) balance on December 31 of the prior year would divide by the factor of 26.5, yielding an RMD of approximately $18,868.
By age 75 with a balance of $550,000, the factor drops to 24.6, producing an RMD of about $22,358. As the life expectancy factor decreases each year, your RMD percentage grows—from roughly 3.8% at 73 to over 7% by age 85.
While your plan sponsor or custodian often provides RMD calculations, the account owner bears ultimate responsibility for taking the correct RMD amounts by the RMD deadline.
Account Owner Responsibilities for 401(k) RMDs
As the owner of a 401(k) or other employer sponsored retirement plan, you play a central role in ensuring your retirement accounts remain compliant with federal tax laws—especially when it comes to required minimum distributions (RMDs). Once you reach the RMD age (currently 73), you are obligated to begin taking minimum distributions from your tax deferred retirement accounts each year. These RMD rules apply to traditional 401(k)s, 403(b) plans, and profit sharing plans, and are designed to ensure that tax deferred retirement savings eventually become taxable income.
Your primary responsibility as an account owner is to calculate and withdraw the correct RMD amount annually. This calculation is based on your account balance as of December 31 of the previous year and your IRS life expectancy factor. It’s important to remember that if you have multiple 401(k) or employer sponsored retirement accounts, you must determine the RMD separately for each plan—plan rules do not allow you to aggregate RMDs across different 401(k)s, unlike with traditional IRAs.
Missing an RMD or withdrawing too little can result in significant tax penalties. The IRS imposes a 25% excise tax on any shortfall, though this can be reduced to 10% if you correct the mistake within the allowed timeframe. Since RMDs are taxed as ordinary income, failing to plan properly can also increase your overall tax liability and impact your retirement cash flow.
How RMDs From a 401(k) Can Push You Into a Higher Tax Bracket
Every dollar of RMD from a traditional 401(k) is treated as ordinary income, stacked on top of Social Security benefits, pension payments, and any other income sources. This stacking effect can quickly move retirees from one tax bracket to the next.
The Bracket Jump in Action
Consider a married couple in their late 60s with $60,000 in taxable income from pensions and investments—comfortably in the 12% federal bracket. At age 73, when $60,000 in combined RMDs kicks in, their taxable income doubles to $120,000, pushing them into the 22% bracket.
This bracket change means:
The last portion of income is taxed at nearly double the previous rate
Up to 85% of Social Security benefits may become taxable (vs. potentially 0-50% before)
Medicare Part B and Part D premiums may increase through IRMAA surcharges
For 2025, IRMAA surcharges begin when modified AGI exceeds $206,000 for joint filers, adding as much as $81.80 per month per person to Part B premiums at the highest income tiers.
The “Tax Bomb” Risk for High-Net-Worth Retirees
Business owners and professionals with $1-3 million in 401(k) and rollover IRA balances face particularly steep tax consequences. Without prior planning, RMD requirements can exceed $100,000 annually by the late 70s or early 80s, potentially pushing retirees into the 32% bracket or higher.
Revolutionary Wealth specializes in modeling future RMDs under different market growth and tax scenarios, helping clients see projected tax liability before they reach RMD age and can no longer make certain adjustments as part of its broaderpersonalized wealth and retirement planning services.
Key Planning Decisions Before Your First 401(k) RMD
The window between ages 59½ and 72 offers critical flexibility to shape your future RMDs. Once you begin taking RMDs, many options close.
Key questions to address during this planning window:
Should I consolidate old 401(k)s from previous employers into one account (typically an IRA) for simplified management?
How much should I withdraw voluntarily before 73 to reduce future required amounts?
Should I convert portions of pre-tax retirement savings to a Roth IRA each year?
When should I claim Social Security, and how does that interact with RMD timing?
Bracket Management Strategy
“Filling” lower tax brackets intentionally in your 60s—by taking voluntary withdrawals or doing Roth conversions up to the top of the 12% or 22% bracket—can prevent being forced into higher brackets later when RMDs, Social Security, and potentially pension income all overlap.
Revolutionary Wealth creates multi-year “retirement income roadmaps” showing exactly how much to take from 401(k)/IRA, Roth, and taxable account sources each year to smooth taxes over a lifetime, often incorporatingfinancial calculators and tax planning toolsto support these decisions.
Planning timeline considerations:
Ages 60-65: Prime years for Roth conversions if income is lower
Age 70½: QCD eligibility begins for IRA owners
Age 73: RMDs must start (or April 1 of following year for first RMD)
Age 85: QLAC payments can begin if purchased earlier
Strategies to Reduce Future 401(k) RMDs (and Total Lifetime Taxes)
While you cannot avoid RMD rules entirely, you can reduce how large your RMDs become through proactive strategies implemented in your 60s and early 70s. Revolutionary Wealth integrates these approaches into every client’s retirement plan, always in coordination with a qualified tax advisor and supported by educational materials available through itsretirement planning resource center.
Roth Conversions Before and Around RMD Age
A Roth conversion involves moving money from a pre-tax 401(k) or traditional IRA to a Roth IRA. You pay taxes on the converted amount now, but future growth and qualified withdrawals become tax free. Critically, Roth IRA balances are not subject to RMDs during your lifetime.
How this reduces future RMDs:
Every dollar converted is one less dollar in your pre-tax balance subject to RMD requirements
Converting while in the 12% or 22% bracket can prevent being pushed into 24% or 32% brackets when RMDs start
You control when and how much to convert, allowing precise bracket management
Important rule:Once RMDs begin, you must take your RMD first each year. The RMD amount itself cannot be converted to Roth—but any additional withdrawal above the RMD can be.
Revolutionary Wealth uses forward-looking tax projection software to test different Roth conversion schedules, identifying the optimal amounts to convert each year based on your specific situation.
Qualified Longevity Annuity Contracts (QLACs) and 401(k) RMDs
A QLAC is a specific type of deferred income annuity you can purchase within an IRA or 401(k) that allows you to delay lifetime income payments (and associated RMDs) on that portion until as late as age 85.
Key benefits:
Amounts used to purchase a QLAC are excluded from RMD calculation until annuity payments begin
Provides guaranteed income later in life when other assets may be depleted
Current limits allow up to $200,000 (2025, indexed for inflation) to be allocated to QLACs
Revolutionary Wealth evaluates whether QLACs fit a client’s situation by considering life expectancy, existing guaranteed income sources, and desire to hedge late-life retirement expenses. QLACs work best as one tool alongside Roth conversions and other strategies—not in isolation.
Coordinating 401(k) RMDs With Annuities and Other Accounts
Many retirees own fixed indexed annuities or income annuities inside IRAs that create additional RMD complexities. Annuity payments may satisfy part of an RMD, but coordination is essential.
Example:A client’s IRA contains both a fixed indexed annuity and investment holdings. The annuity’s annual payment of $15,000 counts toward the IRA’s RMD. If the total RMD is $25,000, the client must withdraw an additional $10,000 from the investment portion.
Remember: each 401(k) plan’s RMD must be satisfied from that specific plan. You cannot use an IRA withdrawal to satisfy a 401 k RMD.
Revolutionary Wealth helps clients align RMDs with annuity payout schedules, pension choices, and Social Security timing to create predictable cash flows and avoid unexpected tax spikes.
Charitable Strategies: Qualified Charitable Distributions and Beyond
Qualified Charitable Distributions (QCDs) allow IRA owners age 70½ or older to send up to $105,000 annually (2025 limit) directly to charity. This amount counts toward the RMD but is excluded from taxable income.
Why this matters:
Reduces adjusted gross income (AGI)
Can lower tax brackets, Social Security taxation, and Medicare surcharges
Ideal for charitably inclined clients who would donate anyway
While QCDs come from IRAs (not directly from 401(k)s), many pre-retirees roll old 401(k)s into IRAs before reaching RMD age specifically to access QCDs later. A charitable gift annuity can also be funded through QCDs under certain conditions.
Revolutionary Wealth coordinates QCD timing with broader estate and legacy planning, helping clients leave more to causes they care about and less to the IRS, and offerseducational videos on retirement and tax strategiesfor clients who prefer to learn visually.
Common 401(k) RMD Mistakes to Avoid
Even financially sophisticated retirees make costly RMD errors. Here are the most common pitfalls:
Forgetting about old 401(k)s or other plan accounts:That workplace plan from 20 years ago still requires its own RMD at age 73
Assuming aggregation works for 401(k)s:Unlike IRAs, you cannot satisfy one 401(k)’s RMD with a withdrawal from another plan
Misunderstanding the still-working exception:It doesn’t apply if you own 5% or more of the business sponsoring your 401 k
Missing the December 31 deadline:The IRS penalty for missed RMDs is a 25% excise tax on the shortfall (potentially reduced to 10% if corrected promptly under SECURE 2.0)
Over-converting to Roth without considering IRMAA:Large conversions can spike AGI and trigger Medicare surcharges based on a two-year lookback
Ignoring Net Unrealized Appreciation (NUA):Business owners with company stock in a 401(k) may benefit from special tax treatment that requires careful planning
Revolutionary Wealth helps clients avoid these costly errors through ongoing monitoring and annual tax-aware reviews—not just one-time investment advice at retirement.
How Revolutionary Wealth Helps You Build a Tax-Smart RMD Plan
Revolutionary Wealth is an independent wealth management firm focused on pre-retirees, retirees, and business owners with complex tax and retirement needs, served by a dedicatedteam of retirement-focused financial professionals. The firm manages over $100 million directly and provides financial professional guidance on over $500 million annually.
Our approach to RMD planning includes:
Multi-year tax projections showing RMD trajectories under different market and tax law scenarios
Roth conversion modeling to identify optimal conversion amounts and timing
QLAC and annuity analysis balancing longevity risks against current tax benefits
Social Security and Medicare timing coordination
Beneficiary and estate structure reviews (including inherited IRA planning)
The ideal time to build your withdrawal strategy is in your early-to-mid 60s—before you reach RMD age and lose flexibility. Revolutionary Wealth creates integrated plans that view RMDs not as isolated requirements, but as one piece of a comprehensive retirement income picture that supports a balancedlong-term lifestyle and financial plan.
FAQs About RMDs From 401(k)s
Can I delay my 401(k) RMD if I’m still working after age 73?
Many workplace plans allow you to delay RMDs from that specific 401(k) until retirement, provided you’re actively employed by the plan sponsor and own less than 5% of the company. However, this delay applies only to your current employer’s plan—old 401(k)s and traditional IRAs from previous employers still require RMDs at age 73. Some pre-retirees strategically roll old 401(k)s into an IRA while preserving the active 401(k) to maximize flexibility.
Do I have to take RMDs from a Roth 401(k)?
Under SECURE 2.0 provisions effective in 2024, Roth accounts in employer plans are no longer subject to RMDs during the account owner’s lifetime. Previously, rolling a Roth 401(k) into a Roth IRA was the standard method to avoid these distributions. Note that beneficiaries who inherit Roth accounts may still face distribution requirements under the 10-year rule, even though the original owner did not have to take RMDs. Always confirm current plan rules with your plan sponsor.
What happens if I miss a 401(k) RMD or take too little?
The IRS assesses an excise tax of 25% on the amount you failed to withdraw by the deadline. Under SECURE 2.0, this penalty can be reduced to 10% if you correct the error within two years. You’ll need to file IRS Form 5329 and may attach a letter requesting a waiver if the shortfall resulted from reasonable error and has been corrected. Contact a financial professional and tax advisor immediately if you discover a missed RMD.
Can I roll my RMD from a 401(k) into an IRA or another 401(k)?
No—the RMD portion itself cannot be rolled over. It must be withdrawn and is treated as ordinary income for federal income tax purposes in the year of distribution. However, if you take more than your required amount, the excess above the RMD may often be rolled into an IRA or new employer plan if other rollover rules are satisfied. Rolling pre-tax money simply continues tax deferred treatment in the new account; it doesn’t eliminate the eventual tax liability.
How do 401(k) RMDs interact with my spouse’s RMDs and our joint tax return?
Each spouse must calculate and take their own RMDs based on accounts they personally own. However, both sets of RMDs combine on a joint tax return, which can push a married couple into higher brackets and IRMAA tiers faster than either might expect looking only at their individual retirement accounts annually. This is why Revolutionary Wealth plans for both spouses together, creating an integrated household tax picture that coordinates RMD timing, Roth conversions, and Social Security claiming strategies.
Building a tax-smart RMD plan starts years before your first required minimum distribution arrives. The decisions you make in your 60s about Roth conversions, account consolidation, and income timing directly shape how much you’ll pay taxes on in your 70s, 80s, and beyond.
If you’re approaching retirement and want clarity on how RMDs will impact your specific situation, Revolutionary Wealth can help.Schedule a consultationto build a personalized strategy that keeps more of your hard-earned retirement savings working for you—not the IRS.
Disclosures:
This blog contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. There is no guarantee that the views and opinions expressed in this blog will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Revolutionary Wealth LLC does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.Past performance is no guarantee of future results.
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