Required minimum distributions become a serious withdrawal obligation when you hit retirement age with substantial savings. The IRS forces account holders with $2.5 million in retirement accounts to withdraw increasing percentages of their balance each year, starting at age 73.
At 73, the distribution factor is 27.4, meaning you divide your account balance by that number. With $2.5 million, this produces an RMD of roughly $91,200 annually. This amount climbs as you age because life expectancy tables shift.
By 75, the factor drops to 25.5. Your RMD rises to approximately $98,000 per year. The distribution percentage accelerates as the IRS assumes shorter remaining lifespans.
At 80, the factor falls to 20.2, pushing your RMD to around $123,800 yearly. The gap widens further at 85, where the factor is 14.8 and your required withdrawal reaches approximately $169,000 annually.
These withdrawals are mandatory. The IRS penalizes 25% of any shortfall (reduced to 10% if corrected within two years). So missing a $91,200 RMD at 73 costs $22,800 in penalties alone.
The real challenge arrives when RMDs collide with tax brackets. Large forced withdrawals can push high earners into higher federal and state tax brackets, increasing overall tax liability beyond what they'd choose to withdraw voluntarily. Some retirees spend years in lower brackets, then suddenly face $150,000-plus annual RMDs that trigger unexpected tax bills.
Roth conversions before age 73 offer one planning strategy. Moving pre-tax retirement funds into Roth accounts now locks in today's tax rate, reducing future RMDs from traditional IRAs. Qualified charitable distributions also help.