How Are Required Minimum Distributions From an IRA Taxed?
Last reviewed: July 2026
Required minimum distributions from a traditional IRA are taxed as ordinary income in the year you take them, at whatever federal bracket your total income lands in. That is the heart of RMD tax planning for a traditional IRA: every pre-tax dollar is taxable, the withdrawals are mandatory once you reach the starting age, and a large balance can force enough income into a single year to push you up a bracket. The phone calls I dread most come in March, from people in their early seventies who just learned what their first required distribution did to their tax return. They saved hard for forty years and built a seven-figure account, then learned how much of that growth was never theirs to keep.
Key Takeaways
- RMDs from a traditional IRA are fully taxed as ordinary income, so a large balance can spike your taxable income in a single year.
- The RMD starting age is currently 73 under SECURE 2.0, and it moves to 75 in 2033.
- Skipping an RMD triggers a 25 percent excise tax on the shortfall, reduced to 10 percent if corrected promptly.
- In Maryland, traditional IRA withdrawals are taxed as income and do not qualify for the $40,600 pension exclusion, while qualified Roth distributions are not taxed.
About the Author: Jeff Judge, CFP®, AEP®, ChFC®, CLU® is Managing Partner of Chesapeake Financial Planners in Forest Hill, Maryland. He has been helping families and business owners in Harford County and the Baltimore metro area navigate retirement tax planning since earning his CFP® certification in 2013, by using Chesapeake's signature process, the R.U.D.D.E.R. Method™. "The savers who handle RMDs well are almost never the ones who found a clever product," Jeff says. "They are the ones who looked at the second half of the job early and used the quiet years before distributions started instead of coasting through them."
Why Is The Money In A Traditional IRA Not All Yours?
Here is the part that catches people off guard. Every dollar you put into a traditional IRA or pre-tax 401(k) went in before taxes, and you took a deduction that year. The IRS let you defer the tax, not erase it.
So the balance on your statement is not entirely your money. Some slice belongs to the government, and the percentage depends on your bracket when you pull it out. If you have a $2 million traditional IRA and you sit in a high bracket once withdrawals start, a large share is already spoken for. You just have not gotten the invoice yet.
For most of your working life this is fine. You were probably in a higher bracket during your earning years than in retirement, so deferring made sense. The trouble starts when the deferral ends and the bill arrives all at once, on a schedule the IRS controls instead of one you choose. The contribution limits stay modest: for 2026 the IRS sets the IRA limit at $7,500, plus a $1,100 catch-up for savers 50 and older, so most large balances were built slowly through decades of compounding.
What Are Required Minimum Distributions And When Do They Start?
Required minimum distributions are the mandatory annual withdrawals the IRS forces you to take from a traditional retirement account once you reach a set age, whether you need the money or not. Each one is taxable, and the amount scales with your balance.
When do RMDs start? Under the SECURE 2.0 law, the starting age is currently 73, and it moves to 75 in 2033. That sounds far off at 60, but it is not. Because the withdrawal scales with your account, a larger balance means more taxable income landing on your return in a single year, often stacked on Social Security.
The penalty for ignoring an RMD is steep. Miss one, and the IRS hits the shortfall with a 25 percent excise tax, dropped to 10 percent if you correct it promptly. I have watched settled retirees get pushed up a bracket the year RMDs began.
"I have watched diligent savers do everything by the book for thirty years and still get blindsided at 73," Jeff Judge says. "The forced distribution arrives all at once, stacks on top of Social Security, and the income spike was never anything anyone warned them about."
How Does A Large Traditional Balance Affect Your Tax Bill?
Here is the uncomfortable math. The deduction on your contributions was calculated at your old bracket. The tax on the withdrawals is calculated at your bracket now, including whatever those forced distributions do to push you up. For many diligent savers, the account grew so well that the eventual withdrawals cost more in tax than the deductions ever saved.
The deferral that helped you for thirty years can quietly work against you in the last twenty. You followed the standard guidance: max the 401(k), defer, defer, defer. Nobody mentioned that doing it too well creates its own problem.
It compounds, because so much in retirement keys off your taxable income. A larger RMD can change how much of your Social Security gets taxed, and it can raise what you pay for Medicare two years later through income-related surcharges. None of this means deferring was a mistake. It means the job is only half done. Saving the money was the first half; getting it out efficiently is the second, and almost nobody plans for that half.
The same withdrawal lands very differently depending on where the rest of your income sits.
| Situation | What happens to the RMD | Why it matters |
|---|---|---|
| Low-income gap year, before RMDs | You control how much comes out | Room to draw down or convert at a low rate |
| Large balance, RMDs in force at 73 | Forced withdrawal scales with account size | Can push you into a higher bracket |
| RMD stacked on Social Security | More of your benefit becomes taxable | Higher effective rate on the same dollar |
| RMD raises income two years before Medicare | Income-related surcharges apply | Higher premiums later, on a delay |
What Is The Planning Window Most People Waste?
There is usually a stretch of years between when you stop working and when RMDs begin. Call it the gap. Your earned income has dropped, you are not yet forced to take large distributions, and you may not have started Social Security. For many people that gap is the lowest-income window of their adult life, and the strongest chance to defuse the tax bill building inside the account.
That window is the opportunity. Your bracket is temporarily low and the forced withdrawals have not started, so this is the stretch where you control how much of that traditional balance gets taxed and at what rate. Once RMDs begin and Social Security is running, your flexibility shrinks and the decisions get made for you. This is where a structured process earns its keep. The R.U.D.D.E.R. Method™ is Chesapeake Financial Planners' six-step planning process: Review and Recognize, Uncover and Understand, Design and Develop, Discuss and Decide, Execute and Empower, and Reassess and Refine. Mapping the gap years against your projected distributions is what it is built for.
Why does the window get wasted? In those gap years, the tax bill is invisible. Nothing forces your hand, the account looks great on paper, and doing nothing feels fine. So people do nothing, and the door closes. The savers who use it well treat those quiet years as a finite resource. The right amount to move and the right years to do it depend on your brackets, your other income, your account sizes, and what you want to leave behind. The mechanism is the same for everyone; the answer is not. Our guide to the pre-RMD gap years walks through the trade-offs, and the year-round tax planning calendar shows when in the year to act.
Why Does The Order You Spend From Accounts Matter?
It is not just how much you have in each type of account. It is the order you draw from them. Most people retire with money in a few buckets: pre-tax IRA and 401(k) money taxed on the way out, taxable savings like a brokerage account where the rules differ, and for some a Roth bucket already taxed that comes out differently when the distribution is qualified.
Each bucket behaves differently, and the sequence has a direct effect on your taxable income each year. Spend purely from one and ignore the others, and you can make a later year far more expensive than it needed to be. Coordinate with an eye on your brackets, and you can smooth the income out instead of letting it spike. The right sequence depends on your situation, but the lever is the thing to grasp. Our breakdown of retirement withdrawal order goes deeper on sequencing the three buckets.
This is also where living in Maryland changes the arithmetic. Maryland taxes traditional IRA and 401(k) withdrawals as ordinary income, and those withdrawals do not qualify for the state's pension exclusion, a maximum of $40,600 in 2026 for residents 65 and older. Qualified Roth distributions, by contrast, are not taxed by the state at all. For our clients in Harford County and across the Baltimore metro area, that contrast makes the low-bracket gap years an unusually valuable window to draw down or convert traditional money, because every dollar moved into Roth escapes both the future federal RMD and the Maryland tax on the back end. Jeff Judge often points out that a couple retiring in Forest Hill faces a different math problem than the same couple would in a no-income-tax state. The Maryland retirement income rules are worth understanding before you decide how fast to draw down.
Frequently Asked Questions
How are RMDs from a traditional IRA taxed?
They are taxed as ordinary income in the year you take them, at your federal marginal rate. Because the entire pre-tax balance is taxable on the way out, a large RMD can push your total income into a higher bracket and raise the rate on those final dollars.
At what age do required minimum distributions start?
Under the SECURE 2.0 law, RMDs from traditional retirement accounts currently begin at age 73, according to the IRS. That starting age moves to 75 beginning in 2033. The size of each required withdrawal scales with your account balance, so larger accounts produce larger taxable distributions.
What happens if I skip my RMD?
If you miss an RMD or take too little, the IRS applies a 25 percent excise tax to the amount you should have withdrawn but did not. That penalty drops to 10 percent if you correct the shortfall in a timely way. The withdrawal itself is still taxable income on top of any penalty.
Can I lower the taxes on my RMDs?
You generally cannot lower the tax on a distribution after it is required, but you can shrink future RMDs ahead of time. Drawing down or converting traditional balances during low-income years before 73 reduces the pre-tax balance future RMDs are based on, which can lower the lifetime tax bill.
Does a Roth IRA have required minimum distributions?
A Roth IRA has no RMDs during the original owner's lifetime, and qualified Roth distributions are not taxed federally or, in Maryland, at the state level. That is why moving money from a traditional account to a Roth during low-bracket years is a common way to reduce the forced, taxable distributions that begin at 73.
How does an RMD affect my Social Security and Medicare?
A large RMD raises your taxable income, which can increase how much of your Social Security benefit is taxed and can trigger higher Medicare premiums through income-related surcharges. Those surcharges apply on a two-year delay, so an income spike at 73 can raise your premiums two years later.
If you have spent decades building a traditional IRA, it is worth knowing what part of the balance is actually yours. Find your projected required distributions and figure out whether you are sitting in one of those low-bracket gap years right now. Schedule a no-obligation call with Jeff to map your RMD tax exposure before the first forced distribution lands on your return.
A version of this article was originally published on Jeff Judge's LinkedIn.
Want to go deeper? Our Roth Conversion Window walks through this step by step.
Disclosures
The information provided is for educational purposes only and should not be construed as investment advice. Investment strategies should be tailored to individual circumstances, risk tolerance, and goals. Past performance doesn't guarantee future results. Consult with qualified financial professionals regarding your specific situation.
Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.
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