If you’ve spent decades contributing to a 401(k) or traditional IRA, there’s a milestone waiting on the other side of that saving: the year you’re required to start withdrawing money whether you need the income or not. For many Colorado retirees, required minimum distributions, or RMDs, are the first time their tax-deferred savings stop being an abstract number on a statement and start being an annual event with real tax consequences.
RMDs aren’t optional, and the rules around them are precise — which years you’re eligible, which accounts are included, how the amount is calculated, and what happens if you miss a deadline. This article walks through the mechanics conceptually, how RMDs interact with other pieces of your retirement plan, and the kinds of timing considerations Coloradans commonly think through. As with all tax-related topics, the specific ages, deadlines, and calculation details are set by federal rules that are periodically updated, so this article focuses on how the pieces work rather than on numbers that may already be outdated by the time you read it.
What Is a Required Minimum Distribution?
A required minimum distribution is the minimum amount the federal government requires you to withdraw each year from certain tax-advantaged retirement accounts, once you reach a specific age. The rule exists because traditional retirement accounts were funded with pre-tax dollars — the government eventually wants its share of tax revenue, and RMDs are the mechanism that forces withdrawals to begin.
RMDs generally apply to:
- Traditional IRAs
- SEP and SIMPLE IRAs
- 401(k), 403(b), and most other employer-sponsored retirement plans
- Inherited retirement accounts, under a different and often more complex set of rules
Roth IRAs, notably, are not subject to RMDs during the original owner’s lifetime, which is one of the reasons some retirees consider Roth conversions as part of their broader planning — more on that below.
The age at which RMDs begin has changed more than once in recent years due to federal legislation, so rather than citing a specific age here, the important habit is to confirm your personal RMD start date with your account custodian or a tax professional as you approach the general age range where this becomes relevant. Account custodians are generally required to notify you as this milestone approaches, but it’s worth confirming proactively rather than waiting for a notice.
How the RMD Amount Is Calculated
Conceptually, your RMD is calculated by dividing your retirement account balance as of the end of the prior year by a life expectancy factor published by the IRS in what’s known as the Uniform Lifetime Table (a different table applies in certain spousal situations). The result is the minimum amount you must withdraw that year.
A few mechanical points worth understanding:
The calculation resets annually. Your RMD isn’t a fixed dollar amount or percentage — it’s recalculated each year based on your account balance and your age, which means it typically increases as a percentage of your remaining balance each year you age.
Multiple accounts have different aggregation rules. If you have several traditional IRAs, you can generally calculate the RMD for each and withdraw the total from any combination of those accounts. Workplace retirement plans like 401(k)s are typically treated separately and usually require their own distribution from that specific plan. This is an area where the rules have nuance, so confirming with your custodian or tax professional before you withdraw is worthwhile.
Missing an RMD carries a penalty. The IRS imposes an excise tax on any portion of an RMD that isn’t withdrawn by the deadline. The penalty structure has been adjusted by recent legislation, and there are provisions for correcting a missed RMD in some circumstances, so if you believe you’ve missed one, addressing it promptly with a tax professional is far better than leaving it unresolved.
RMDs and Your Tax Picture
For many retirees, the RMD year is when they first feel the full tax impact of decades of tax-deferred saving. A few dynamics worth understanding:
RMDs Count as Ordinary Income
The amount you withdraw as an RMD is generally taxed as ordinary income at both the federal level and, for Colorado residents, potentially at the state level as well, though Colorado offers certain age-based subtractions that may reduce the impact for many retirees. Because these provisions and thresholds are adjusted periodically, confirming current rules with your tax professional is more reliable than relying on a fixed figure.
RMDs Can Push You Into a Higher Tax Bracket
Because an RMD is added on top of your other income sources — Social Security, a pension, part-time work — it can sometimes push your total taxable income into a higher bracket than you anticipated, or trigger other income-related effects, such as increased Medicare premiums through IRMAA surcharges. This is one of the reasons a comprehensive income plan looks at all of your income sources together rather than evaluating RMDs in isolation. For more on how Medicare premiums and income interact, see our Medicare planning page.
The “RMD Bump” and Multiple Income Sources
Coloradans who also collect Social Security and a pension sometimes find that the combination of these income sources, once RMDs begin, creates a larger tax bill than they expected during their working years, when income was more predictable and often lower per dollar taxed. This is a common surprise, and it’s one reason many pre-retirees benefit from projecting their RMD-year tax picture years in advance rather than waiting until the requirement begins.
RMDs and Roth Conversions
Because Roth IRAs aren’t subject to RMDs during the original owner’s lifetime, and qualified Roth withdrawals are generally tax-free, some pre-retirees use the years before RMDs begin to evaluate converting a portion of their traditional IRA to a Roth IRA.
The general logic: converting a portion of a traditional IRA to a Roth means paying tax on the converted amount now, at your current tax rate, in exchange for reducing your traditional IRA balance — and therefore your future RMDs — while potentially also creating tax-free income later in retirement. Whether this trade-off makes sense depends heavily on your current versus expected future tax bracket, how much you can convert without pushing yourself into a higher bracket in the conversion year, and your broader financial goals, including what you intend to leave to heirs.
This is a highly individual decision, not a strategy that makes sense universally, and it should be coordinated with your tax professional given how conversion amounts interact with your total taxable income in the conversion year. Our Roth conversion planning page covers the mechanics of this decision in more depth.
RMDs and Charitable Giving
For retirees who are charitably inclined, a Qualified Charitable Distribution, or QCD, is a mechanism worth understanding conceptually. A QCD generally allows an IRA owner who is old enough to take RMDs to direct a distribution from their IRA straight to a qualifying charity. When done correctly, a QCD can satisfy some or all of that year’s RMD requirement without the distributed amount being counted as taxable income to the retiree — a meaningfully different outcome than withdrawing the funds yourself and then donating them.
The specific rules — which charities qualify, how the distribution must be processed, and any annual limits — are set by the IRS and adjusted periodically, so this is squarely a topic to walk through with your tax professional before you initiate a QCD, particularly around the timing relative to your RMD deadline for the year.
Timing Considerations Colorado Retirees Commonly Weigh
A handful of timing questions come up repeatedly in RMD planning conversations:
Your First RMD Year Has a Special Deadline Rule
The year you become eligible for your first RMD, you generally have some flexibility on timing — you may be able to delay that first distribution into the following calendar year, up to a specific deadline. Doing so, however, generally means you’d take two RMDs in that following year, which can create an unusually large taxable income year. Whether delaying your first RMD makes sense depends on your broader tax picture that year and the next, and it’s worth modeling both scenarios with a tax professional before deciding.
Coordinating RMDs With Social Security Claiming
If you haven’t yet started Social Security when your RMDs begin, it’s worth looking at both decisions together rather than in isolation, since your combined income from RMDs and Social Security affects how much of your Social Security benefit is taxable. Our article on Social Security timing walks through those claiming considerations in more detail.
Coordinating RMDs With Withdrawal Sequencing
RMDs are mandatory, but they’re not necessarily the only withdrawals you’re taking in a given year. If you’re also drawing from brokerage accounts, a Roth IRA, or other sources, the order in which you tap different account types can affect your total tax bill and how long your assets last. This is part of why a coordinated income and withdrawal strategy — rather than a single-account view — tends to serve retirees better over the long run. Our retirement income planning page walks through how these pieces typically fit together.
Inherited Accounts Follow Different Rules
If you’ve inherited a retirement account from someone other than a spouse, the RMD rules that apply to you are generally different — and in many cases more restrictive — than the rules for your own accounts, following changes to inherited IRA rules in recent years. If you’re managing an inherited account, this is an area where confirming your specific obligations with a tax professional is especially important, since the rules depend on your relationship to the original owner and when they passed away.
Building RMDs Into Your Broader Retirement Plan
RMDs are often treated as a standalone compliance task — something to check off once a year — but they’re more useful when viewed as one input into a broader retirement income and tax strategy. The years before RMDs begin are typically your best window for proactive tax planning: Roth conversions, charitable giving strategies, and withdrawal sequencing decisions all tend to have more flexibility before RMDs become mandatory. Our RMD planning page goes into more detail on how we help Colorado retirees think through this specific piece of the puzzle.
Your Next Step
Understanding RMD mechanics is a good foundation, but every retiree’s account mix, tax bracket, and income timeline is different — this article is educational and isn’t a substitute for a plan built around your specific numbers. If you’re approaching the age range where RMDs become relevant, or you’re already taking them and want to make sure they’re coordinated with your broader tax and income strategy, a Colorado Retirement Clarity Review is a complimentary way to look at how RMDs, Social Security, and your other income sources fit together. This content is educational and not personalized advice; please coordinate with your tax professional regarding your specific situation. Schedule your review today to get started.
This article is for educational purposes only and is not individualized investment, tax, or legal advice. Please consult your tax professional regarding your specific situation.