[TX-04] RMDs, QCDs, and Inherited IRAs

The forced-income era — why the percentage rises every year, and the one move that takes pre-tax money out at 0%

Pillar: Tax Optimization & Decumulation · Applies to: Anyone approaching 73, anyone charitable and over 70½, and anyone who has inherited a retirement account Last verified: August 2026 · Refresh cadence: Annual (QCD limit and figures via FN-02) + event-driven (SECURE-era regulations) Related: TX-02 Roth Conversion Strategy · TX-03 Withdrawal Sequencing · SS-03 Taxation of Benefits · HC-06 IRMAA · TX-06 Senior Deduction & Bunching · EP-01 Beneficiary Hygiene · FN-02 Key Numbers

Not advice. RMD mechanics are unforgiving — the penalty for missing one is an excise tax, and the inherited-IRA rules changed twice in five years. Confirm your own required beginning date and beneficiary category against IRS Pub. 590-B and your custodian’s calculation before relying on anything here.

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TL;DR

• RMDs begin at 73 (born 1951–1959) or 75 (born 1960 or later) ✅. There are none for a Roth IRA owner during their lifetime, and — since 2024 — none for Roth 401(k)s either.
• The percentage is not fixed; it rises every single year. At 73 the RMD is 3.77% of the prior year-end balance; at 85 it is 6.25%; at 90 it is 8.20%. A projection that assumes “about 4%” understates late-life forced income by half.
• Aggregation rules differ by account type and this is where people get penalised. Traditional IRAs aggregate; 403(b)s aggregate only with each other; 401(k)s do not aggregate at all — each plan must pay its own. Inherited accounts never aggregate with your own.
• The QCD is the best move in the code for a charitable retiree: from 70½ (not 73), up to $111,000 per person in 2026 ✅, straight from IRA to charity. It satisfies the RMD and never enters AGI at all.
• The worked example in §4 is why: a $20,000 QCD beats a $20,000 cheque by $4,440 for a couple in the 12% bracket — because the QCD also pulls $17,000 of Social Security back out of taxation (SS-03). The saving equals the torpedo rate, not the bracket rate.
• Inherited IRAs: most non-spouse heirs face the 10-year rule, and since 2025 must also take annual RMDs in years 1–9 if the decedent had already begun theirs ✅ — a trap that was penalty-waived for 2021–2024 and is now enforced.

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1. When RMDs Start

Born	First RMD year (age)	✅
1951–1959	73	✅
1960 or later	75	✅

The first-year timing trap. Your first RMD may be deferred to April 1 of the following year — the “required beginning date.” Almost nobody should. Deferring means taking two RMDs in one calendar year, which stacks a double dose of ordinary income into a single return, and can push you through a bracket, an IRMAA tier (HC-06), and the Social Security torpedo (SS-03) simultaneously. Take the first one in the year you turn 73.

Who is exempt:

• Roth IRA owners — no RMDs during your lifetime. This is a real part of the conversion case (TX-02).
• Roth 401(k)s — RMDs eliminated from 2024 under SECURE 2.0 ◻️. Rolling a Roth 401(k) to a Roth IRA is still usually cleaner.
• The still-working exception — if you’re still employed at 73+, are not a 5% owner, and your plan permits it, you may defer RMDs from that employer’s plan only ◻️. It never applies to IRAs, and it never applies to former employers’ plans.

2. The Rising Percentage

The RMD is the prior 31 December balance divided by a factor from the Uniform Lifetime Table. The factor shrinks every year, so the percentage climbs even if the balance doesn’t:

Age	Divisor	RMD as % of balance
73	26.5 ✅	3.77%
75	24.6 ◻️	4.07%
80	20.2 ◻️	4.95%
85	16.0 ◻️	6.25%
90	12.2 ◻️	8.20%

This is the single most under-modelled fact in retirement tax planning. People project their RMD at 73, find it manageable, and conclude there is no problem. But a portfolio that merely keeps pace with inflation still produces a forced income stream that more than doubles as a percentage between 73 and 90 — arriving precisely when the survivor is filing single at halved brackets (TX-02 §3).

(A married owner whose sole beneficiary is a spouse more than 10 years younger uses the Joint and Last Survivor Table instead, which produces smaller RMDs ◻️.)

3. Aggregation: The Rule That Generates Penalties

The amount is computed per account. Whether you may then take it from one account depends entirely on the account type, and getting this wrong is the most common way to incur an excise tax while believing you complied.

Account type	Compute	May you satisfy the total from one account?
Traditional / SEP / SIMPLE IRAs	Per account	Yes — aggregate across all of them and take from any one ✅
403(b)s	Per account	Yes, but only with other 403(b)s ✅
401(k) / 457(b) / other employer plans	Per plan	No. Each plan must distribute its own RMD ✅
Inherited IRAs	Per account	Never with your own. Inherited-from-different-decedents also never aggregate with each other ◻️

The classic failure: someone with three old 401(k)s takes the whole calculated total from one of them, having read that IRAs aggregate. Two plans are then short, and each shortfall carries its own excise tax. Consolidating old 401(k)s into a single IRA before 73 removes this entire class of error — weigh it against the creditor-protection and Rule-of-55 considerations in ST-01 and ER-04.

4. QCDs: The Best Move in the Code for a Charitable Retiree

A Qualified Charitable Distribution transfers money directly from an IRA to a qualifying public charity. It satisfies your RMD and is excluded from AGI entirely — it is not a deduction, it is an exclusion, and that difference is where all the value lives.

Rule	2026
Minimum age	70½ — the actual half-birthday, not the year you turn 70, and not the RMD age ✅
Annual limit	$111,000 per person (so $222,000 for a couple with separate IRAs) ✅
One-time split-interest election (CRT/CGA)	$55,000, and it counts inside the $111,000 cap, not on top ✅
Eligible accounts	IRAs only. Not 401(k)s or 403(b)s — roll to an IRA first ◻️
Eligible recipients	Public charities. Not donor-advised funds, not private foundations ◻️

Why exclusion beats deduction — the arithmetic

Couple, both 75, MFJ. RMD $60,000. Social Security $50,000. They give $20,000 a year to their church.

	Take the RMD, write a cheque	QCD $20,000, take $40,000
IRA income into AGI	$60,000	$40,000
Taxable Social Security (SS-03)	$40,850	$23,850
AGI	$100,850	$63,850
Deduction taken	$35,500 standard	$35,500 standard
Taxable income	$65,350	$28,350
Federal tax	$7,346	$2,906

The QCD saves $4,440 on a $20,000 gift — 22.2% of the amount given, for a couple whose statutory bracket is 12%.

Two things produce that. The cheque earns nothing: their only itemizable deduction is the gift itself, which is far below the $35,500 standard deduction, so writing it is charitably identical and fiscally invisible. And the QCD pulls $17,000 of Social Security back out of taxation, because lower AGI means lower provisional income. The saving equals the torpedo rate — 12% × 1.85 = 22.2% — not the bracket rate (SS-03 §4).

This is why QCDs come before conversions for a charitable household (TX-02 §7). Pre-tax money going to charity at a 0% rate cannot be beaten by moving the same money to Roth at 12%, 22%, or anything else.

Three mechanical traps:

1. It must go directly from custodian to charity. A cheque routed through you is a distribution followed by a gift, and the exclusion is lost.
2. The anti-abuse rule: deductible IRA contributions made after 70½ reduce your available QCD amount, dollar for dollar and cumulatively ◻️. Working retirees who keep contributing can quietly destroy their own QCD capacity.
3. Timing beats the RMD. A QCD only offsets an RMD that hasn’t already been taken. Do the QCD first in the year, before any other distribution, or the RMD is satisfied with taxable dollars and the QCD becomes an extra withdrawal.

5. Inherited IRAs and the 10-Year Rule

SECURE (2019) killed the “stretch IRA” for most heirs. Who you are decides everything.

Eligible designated beneficiaries — surviving spouse, minor child of the decedent (until majority, then 10 years), disabled or chronically ill individuals, and anyone not more than 10 years younger than the decedent — may still use a life-expectancy stretch ◻️.

Everyone else — adult children, grandchildren, siblings, friends — gets the 10-year rule: the account must be emptied by 31 December of the tenth year after the year of death.

The 2025 change that catches people: under the final regulations, if the decedent had already begun RMDs, the 10-year beneficiary must also take annual RMDs in years 1 through 9 — not just empty it by year 10. ✅ The IRS waived the penalty for these annual distributions for 2021–2024, and enforcement began in 2025 ✅. Anyone who inherited during the waiver years and assumed “empty by year 10, nothing before” is now non-compliant.

Spouses have options nobody else has: treat it as your own (rollover), or keep it inherited. The rollover is usually right — your own RMDs start later and use the more favourable Uniform Lifetime Table — except when the survivor is under 59½ and needs access, since inherited-IRA distributions escape the 10% early-distribution penalty (ER-05).

The planning consequence, which belongs in your conversion math: a traditional IRA left to a 55-year-old child lands as forced income across their peak earning decade. That is the strongest single argument for converting more than your own lifetime arithmetic suggests (TX-02 §1), and the strongest argument for naming charity as beneficiary of the pre-tax account while the Roth goes to the children (TX-03 §5).

6. Sequencing the 10-Year Window

The rules above say when the account must be empty. They say nothing about the schedule in between, and the schedule is where the money is. tools/inherited_ira_optimiser.py searches it; what follows is one run, and the shape matters more than the totals.

A beneficiary aged 52 inherits $800,000 growing at 5%. She works five more years at $150,000, then retires at 57 onto marketplace coverage with $30,000 of other income. State rate 5%. Every figure below is tax caused by the inheritance — her tax on her own income is netted out.

Schedule	Tax on the inherited IRA
Let it grow, empty in year 10	$463,429
An even tenth each year	$339,489
Fill each retired year to the ACA cliff, rest in working years	$255,748
Optimised	$239,428

The “let it grow” instinct is the expensive one — $224,001 worse than the optimised schedule, because ten years of growth all lands in a single year at the top of the brackets, and it lands in a year she is buying marketplace coverage.

The even split is the seductive one, and it is $100,061 worse. It looks balanced and it is not: it puts identical dollars into $150,000-income years and $30,000-income years as though those cost the same.

And the rule of thumb — fill the retired years exactly to the $84,600 cliff (HC-01) — gets most of the way there, within $16,320. That margin is the honest answer to whether this needs a tool: for a reader who will actually do the arithmetic by hand, the rule of thumb captures roughly 94% of the available saving. The tool earns its place on the last slice and on the cases the rule does not cover.

The finding worth carrying away is about the shape, not the total. A cliff does not mean “never cross it.” Once the premium tax credit is gone, the marginal cost of the next dollar falls back to the ordinary bracket — so the optimised schedule either stays clear of the cliff or goes decisively through it, and it does both in different years. The expensive mistake is crossing by a little, which buys a full $20,832 of credit loss for a few thousand dollars of withdrawal (HC-01 §4).

Three inputs change the answer and are worth editing in the script before trusting any of it: your own income path across the ten years, whether you are on marketplace coverage in any of them, and whether you cross 63 inside the window — at which point IRMAA’s two-year lookback joins the constraint set (HC-06).

7. The Penalty, and the Fix

Missing an RMD triggers an excise tax of 25% of the shortfall — reduced to 10% if corrected within the correction window ✅. SECURE 2.0 cut this from the old 50%, which was the harshest penalty in the code.

If you miss one: take the missed distribution immediately, file Form 5329 for the year of the shortfall, and request a waiver for reasonable cause with an explanation attached. The IRS grants these routinely for genuine errors that were promptly fixed ◻️ — but the request has to be made; the penalty does not lapse on its own.

8. Three Scenarios

A. The three-401(k) penalty (74, three old employer plans plus an IRA). He computes his total RMD correctly and takes all of it from the IRA, having read that accounts aggregate. They don’t — 401(k)s never aggregate (§3). Two plans are short their full amounts and each shortfall carries the excise tax. He files Form 5329 with a reasonable-cause request and fixes it, but the whole episode was avoidable: consolidating the three plans into the IRA at 72 would have made his instinct correct.

B. The charitable couple (both 75, §4 above). They give $20,000 a year and had been writing cheques, getting nothing for it because the standard deduction dwarfs the gift. Switching to QCDs saves $4,440 a year — 22.2% of the amount given — with no change to their giving, their charity, or their spending. It is the highest-return paperwork change in this wiki.

C. The inheriting daughter (52, inherited her father’s IRA in 2023). Her father was 78 and taking RMDs, so she is a 10-year beneficiary who must also take annual RMDs in years 1–9. The penalty was waived for 2023 and 2024, so nothing went wrong — but from 2025 it is enforced, and she had planned to let it ride and empty it in year 10. She now takes an annual distribution, and reconsiders the timing: at 52 she is in her peak earning years, so front-loading into a lower-income year later may beat spreading evenly. Either way, the plan she formed in 2023 was invalidated by regulation in 2024.

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💡 Pro-Tips

1. Take the first RMD in the year you turn 73, not by the following April 1 — deferring stacks two into one return.
2. Consolidate old 401(k)s into an IRA before RMDs start. It converts the aggregation rule from a trap into a convenience (§3).
3. QCD first, before any other distribution in the year. A QCD cannot offset an RMD you already took.
4. If you’re charitable at all and over 70½, stop writing cheques. With the standard deduction where it is, cash giving is usually fiscally invisible while a QCD is worth your full marginal rate — and more if you’re in the torpedo (§4).
5. Project the RMD at 85 and 90, not just 73. The percentage rises from 3.77% to 8.20% (§2), and the projection at 73 is the one that makes people think they have no problem.
6. Watch deductible IRA contributions after 70½ — they cumulatively reduce QCD capacity.
7. Check the beneficiary category on any account you inherit, and whether the decedent had begun RMDs. It determines whether you owe annual distributions inside the 10-year window (§5).
8. Leave pre-tax to charity and Roth to the kids (TX-03 §5). It is the single highest-value beneficiary decision available.

⚠️ Common Pitfalls

1. Taking a 401(k) RMD from an IRA — they don’t aggregate, and each shortfall is penalised separately.
2. Deferring the first RMD to April 1 and doubling up income in one year.
3. Assuming the RMD percentage is flat. It nearly doubles between 73 and 90.
4. Writing charitable cheques after 70½ instead of using QCDs — usually worth nothing against the standard deduction.
5. Routing a QCD through your own account — direct transfer or it isn’t a QCD.
6. Sending a QCD to a donor-advised fund or private foundation. Neither qualifies.
7. Taking the RMD first and the QCD second, so the QCD offsets nothing.
8. Believing the 10-year rule means “nothing until year 10.” If the decedent had begun RMDs, years 1–9 each require one, enforced from 2025.
9. Rolling an inherited IRA to your own when you’re under 59½ and losing penalty-free access (ER-05).
10. Forgetting Roth 401(k)s no longer have RMDs and taking unnecessary distributions.
11. Missing an RMD and doing nothing — the excise tax doesn’t lapse, but a Form 5329 waiver request usually works.

✅ Actionable Checklist

Before 73 (the preparation window)

• Consolidate old employer plans into one IRA, weighing creditor protection (ST-01 dimension 5)
• Project RMDs at 73, 80, 85 and 90 — and against single brackets for the survivor (TX-02 §3)
• Use the pre-RMD years for conversions; this window closes permanently (TX-03 §4)
• Set beneficiaries deliberately: charity ← pre-tax, heirs ← Roth (EP-01)

At 70½

• If charitable, switch all giving to QCDs — this is before RMDs start, and the age is exact
• Stop deductible IRA contributions if you intend to use QCDs

Every year once RMDs begin

• January: do the QCD before any other distribution
• Verify each employer plan’s RMD is satisfied from that plan
• Confirm the divisor against your current age — it changes annually
• Check the RMD against IRMAA tiers (HC-06) and the torpedo band (SS-03) before December

If you inherit

• Determine your beneficiary category and whether the decedent had begun RMDs
• If 10-year with annual RMDs: calendar all nine, plus the year-10 emptying
• Spouse under 59½: compare rollover against keeping it inherited

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State notes (→ ST-01, ST-04): RMDs are ordinary income for state purposes in most states that tax income, so the forced-income era is materially cheaper in the nine no-income-tax states and in Illinois, Pennsylvania and Mississippi, which exempt essentially all retirement income ✅ (ST-04 §1.1, §1.3). QCDs are federal exclusions, and because they never enter AGI they generally never enter state taxable income either — states that begin from federal AGI get the benefit automatically ◻️, which makes a QCD worth more in a high-tax state than the federal arithmetic in §4 suggests. Two further points. If a move is planned, note that 4 U.S.C. §114 bars your former state from taxing RMDs once you are a non-resident ✅ — the forced-income era is exactly what that shield protects (ST-03 §5). And the estate side runs the other way: a large unconverted IRA sits in your taxable estate at full value in the 12 states plus DC that levy estate tax, where exemptions start at $1,000,000 in Oregon (ST-04 §2.1) — so in those states the RMD-versus-conversion question carries an estate-tax dimension the federal math never raises.

Sources & further reading (verified Aug 2026)

• IRS Pub. 590-B, Distributions from Individual Retirement Arrangements — RMD computation, the Uniform Lifetime and Joint & Last Survivor tables, and inherited-account rules
• SECURE Act (2019) and SECURE 2.0 (2022) — RMD ages 73/75, the excise-tax reduction from 50% to 25%/10%, Roth 401(k) RMD elimination, and QCD indexing plus the one-time split-interest election
• Final regulations on required minimum distributions (2024) — confirmation that 10-year beneficiaries must take annual RMDs in years 1–9 where the decedent had begun RMDs; penalty relief for 2021–2024 under Notices 2022-53, 2023-54 and 2024-35, with enforcement from 2025
• IRC §408(d)(8) (QCDs) and Form 5329 instructions (missed-RMD excise tax and the waiver request)
• FN-02 for the 2026 QCD limit and RMD ages; SS-03 §4 for the torpedo multiplier that sets the QCD’s real value; TX-02 §7 for why QCDs precede conversions