Phase 2 · Wealth & Leverage
Required Minimum Distribution Calculator
Tax-deferred for decades — then the IRS wants its cut. Project the withdrawals you'll be forced to take from 73 on, and the lifetime tax bomb hiding inside your Traditional balance.
Under the hood
The math, fully exposed
Each year from 73 on, the IRS divides your balance by a life-expectancy factor:
RMD = prior year-end balance ÷ IRS Uniform Lifetime factor
Factor at 73 = 26.5 (≈3.77%), at 80 = 20.2 (≈4.95%), falling every year
Tax = RMD × marginal rate
Next balance = (balance − RMD) × (1 + return)
- The percentage only climbs: as the factor shrinks each year, RMDs take a bigger slice — often outpacing what you'd choose to withdraw, pushing you into higher brackets.
- Growth fights you here: a higher return grows the balance the RMD is calculated on, enlarging future withdrawals and their tax — the opposite of every other tool.
- It's a timing problem: income you deferred for decades lands in a narrow window. Moving some out early — Roth conversions, QCDs — is how you flatten the bomb.
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Answers
Frequently asked questions
What is a Required Minimum Distribution?
An RMD is the minimum amount the IRS forces you to withdraw each year from tax-deferred accounts — Traditional IRAs and 401(k)s — starting at age 73 (rising to 75 in 2033). The withdrawal is taxed as ordinary income whether you need the money or not. Decades of tax-deferred growth come due all at once, which is why large pre-tax balances create a "tax bomb" in your 70s and 80s.
How is the RMD calculated?
Each year's RMD is your prior year-end balance divided by a life-expectancy factor from the IRS Uniform Lifetime Table. At 73 the factor is 26.5, so the first RMD is about 3.77% of the balance; by 80 it is 20.2 (≈4.95%), and the percentage climbs every year. A bigger balance and a longer life both mean larger total withdrawals — and a larger tax bill.
What happens if I skip or underpay an RMD?
The penalty is steep: 25% of the amount you failed to withdraw (reduced to 10% if you correct it promptly), on top of the income tax you still owe. RMDs are not optional. If you have multiple accounts the rules on which can be aggregated differ between IRAs and 401(k)s, so confirm the details — this is an educational model, not tax advice.
How can I shrink the RMD tax bomb?
Three common levers: convert some Traditional money to Roth in your 60s (Roth has no RMDs) while you are in a lower bracket; use Qualified Charitable Distributions to send RMDs straight to charity tax-free after 70½; and draw down tax-deferred accounts earlier to flatten the balance before 73. Each shifts income out of the high-RMD years. Confirm specifics with a tax professional.