Required Minimum Distributions
Tax deferred is not tax forgiven. Traditional retirement accounts must begin distributing at a specified age, and the amount is set by a table rather than by choice.
MadStockAlerts Research · Updated August 29, 2026
What to take away
- Distributions from traditional accounts are required from a specified age.
- The amount is the balance divided by a life expectancy factor from a published table.
- Roth accounts are not subject to them for the original owner.
- The penalty for missing one has historically been severe.
- Inherited accounts have their own and repeatedly revised rules.
MAD Academy Training Video · 0:45
The Withdrawal You Do Not Choose
Tax deferral eventually ends: traditional accounts require withdrawals on a schedule, whether you need the money or not.
This lesson is part of a Stock Alerts + Tools plan.
Why they exist
A traditional retirement account defers tax rather than eliminating it. Required distributions are the mechanism by which the deferral ends: the account must begin paying out, and the payments are taxed as ordinary income.
Without the requirement, an account could defer indefinitely and pass to heirs untaxed, which is not the bargain the deduction was granted for. The rules exist to bring the deferred amount into income within a defined period.
This describes how the rules are structured and is not tax advice. Tax rules change, they interact, and the treatment of any particular situation depends on circumstances that only a qualified professional can assess.
How the amount is calculated
distribution = account balance at the end of the prior year / life expectancy factor
- the factor comes from a published table and falls as the account holder ages
- a falling factor means the required percentage rises each year
The percentage therefore increases over time, from a small share of the balance in the first years to a substantially larger one later. The calculation is mechanical, and it applies whether or not the money is needed.
It is also calculated on the prior year-end balance, so a distribution required in a year when markets have fallen is based on a balance from before the fall. That timing mismatch is a recurring source of difficulty.
Scroll the chart sideways to see all of it.
What the requirement forces
- A distribution has to be taken, which means selling positions if there is insufficient cash.
- The distribution is taxed as ordinary income, which can affect other calculations that depend on income.
- It applies per account type, with aggregation rules that differ between individual accounts and employer plans.
- The distribution can generally be taken in kind, transferring securities rather than selling them, though the amount is still taxed.
The fourth item is a mechanical detail with a practical consequence: the tax is on the value distributed, and taking it in kind avoids realising a sale in a falling market while still producing the income.
Inherited accounts
An inherited retirement account is governed by rules that have been revised several times in recent years, and the treatment depends on when the original owner died, on the relationship of the beneficiary, and on the type of account.
This is the single area in this pillar where general descriptions age fastest and where the consequences of getting it wrong are largest. Anything specific about an inherited account belongs with a professional who can check the current rules against the actual facts. This describes how the rules are structured and is not tax advice. Tax rules change, they interact, and the treatment of any particular situation depends on circumstances that only a qualified professional can assess.
The general shape, which has been stable, is that a beneficiary who is not a spouse is generally required to draw the account down over a limited period rather than over their own lifetime, and that the period and the annual requirements within it have changed.
The mechanics of taking one
The requirement is a calculation and taking it is an operation, with several details that determine whether it is satisfied correctly.
- 1Establish the balanceThe account's value at the end of the prior year, per account.
- 2Apply the factorFrom the published table, based on age.
- 3Determine which accounts can be aggregatedIndividual retirement accounts follow different aggregation rules from employer plans.
- 4Take the distribution by the deadlineGenerally the end of the calendar year, with a special rule for the first one.
- 5Account for the withholdingDistributions are subject to withholding unless an election is made.
The third step is where errors concentrate. The amounts can be calculated separately per account and, for some account types, taken from any one of them; for others they must be taken from each. This describes how the rules are structured and is not tax advice. Tax rules change, they interact, and the treatment of any particular situation depends on circumstances that only a qualified professional can assess.