RMDs Made Simple: Roth IRAs, Traditional IRAs, and Inherited Accounts Explained

Required Minimum Distributions (RMDs) can be confusing, especially because the rules vary depending on the type of account you hold. Whether nearing retirement or managing a loved one’s estate, understanding RMDs is crucial. This knowledge can help avoid IRS penalties and enable smarter financial decisions. This article breaks down RMDs clearly, providing real examples for better comprehension.

Required Minimum Distributions: A Comprehensive Guide

Understanding the Foundations of Effective Tax Preparation Strategies

What Are RMDs?

RMDs are the mandatory withdrawals the IRS requires from certain retirement accounts once you reach a specific age. Here’s the simple rule:

• Traditional IRAs require RMDs.

• Roth IRAs (your own) do not require RMDs.

• Inherited IRAs and inherited Roth IRAs have their own rules, which is where most people get tripped up.

  
  

If you miss an RMD, the IRS can impose a penalty of 25% of the amount you were supposed to take. Therefore, it is essential to understand how these rules apply to your situation.

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RMD Rules for Traditional IRAs

Traditional IRAs are funded with pre-tax money. This means you did not pay tax when you contributed, so the IRS expects to tax it later.

When Do RMDs Start?

• RMDs begin at age 73.

• Your first RMD is due by April 1 of the following year.

• Every RMD after that is due December 31 each year.

  
  

How RMDs Are Calculated

The IRS uses a straightforward formula: Account balance on Dec 31 of last year ÷ Life-expectancy factor.

Example: If you had $365,000 in your IRA at the end of the year and your IRS factor is 25.5, your RMD is calculated as follows:

$$

$365,000 ÷ 25.5 = $14,314

$$

That $14,314 becomes taxable income for you.

Why Traditional IRA RMDs Matter

Taking RMDs can significantly impact:

• Your tax bracket

• Your Medicare premiums

• The taxation of your Social Security benefits

  
  

This is why many individuals begin planning their RMD strategy several years in advance.

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RMD Rules for Roth IRAs

This is where Roth IRAs shine.

No RMDs for Original Owners

If the Roth IRA belongs to you:

• You never have to take an RMD.

• Your money can continue to grow tax-free.

• Qualified withdrawals are entirely tax-free.

  
  

This makes Roth IRAs an excellent tool for long-term tax planning and for passing money to heirs.

Inherited Traditional IRAs

If you inherit a Traditional IRA, the rules depend on your relationship to the original owner.

If You’re the Spouse

You have the most options:

• You can treat the IRA as your own.

• You can wait until age 73 to begin RMDs.

• You can also keep it as an inherited IRA if the age difference makes that strategy more beneficial.

  
  

If You’re NOT the Spouse

(Most children, grandchildren, siblings, etc.)

You usually fall under the 10-Year Rule:

• You must empty the account by December 31 of year 10 after the original owner passed.

• Depending on the owner’s age, you may also have to take annual RMDs in years 1–9.

  
  

Example

If your father dies at age 78 and leaves you his IRA (and he was already taking RMDs):

• You must take RMDs every year.

• The entire account must be drained by year 10.

• All withdrawals are taxable income for you.

  
  

This situation catches many beneficiaries by surprise.

Inherited Roth IRAs

Even though Roth IRAs are tax-free, the RMD rules still apply for inherited accounts.

If You’re the Spouse

You can treat the inherited Roth as your own. This means:

• No RMDs for life.

• Tax-free growth.

• Complete flexibility.

  
  

If You’re NOT the Spouse

You must adhere to the 10-Year Rule, even though the withdrawals are tax-free:

• You must empty the account within 10 years.

• Most individuals do not need annual RMDs, but the account must not remain untouched until year 10.

• The penalty for missing these rules still applies.

  
  

Example

Your mother leaves you her Roth IRA:

• No taxes on any withdrawals.

• However, you still must empty the account by year 10.

• Waiting until year 10 could create large forced withdrawals (even tax-free ones).

  
  

Inherited Roth vs. Inherited Traditional IRA: The Key Differences

Here’s the simplest way to understand it:

| Feature | Inherited Traditional IRA | Inherited Roth IRA |

|-------------------------------|---------------------------|---------------------|

| Taxes on withdrawals | Yes | No |

| Subject to 10-year rule? | Yes | Yes |

| Need annual RMDs? | Sometimes | Usually no |

| Must be fully withdrawn in 10 years? | Yes | Yes |

| Affects your tax bracket? | Yes | No |

Bottom line: A Roth IRA avoids taxes, but it does not avoid RMD rules when inherited.

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Common RMD Mistakes People Make

Some of the most frequent issues encountered include:

• Forgetting the first RMD at age 73.

• Not realizing inherited Roth IRAs still have deadlines.

• Taking the wrong RMD amount from the wrong account.

• Waiting until year 10 and causing large taxable withdrawals.

• Not coordinating RMDs with Social Security or Medicare timing.

  
  

These mistakes are avoidable with the right plan.

How Pacific Taxes and Investments Can Help

RMDs do not have to be stressful. Pacific Taxes and Investments assists clients in:

• Accurately calculating their RMDs.

• Building tax-efficient withdrawal strategies.

• Avoiding IRS penalties.

• Evaluating Roth conversions before age 73.

• Structuring inherited IRA withdrawals correctly.

• Planning retirement distributions with long-term tax implications in mind.

  
  

Clear guidance now can save thousands later and protect the savings you have worked hard to accumulate.