RMD taxes: how required distributions actually get taxed

Ordinary income, full stop

Every dollar of a required minimum distribution from a traditional IRA, SEP, SIMPLE, 401(k), 403(b) or governmental 457(b) is included in gross income in the year you receive it and taxed at ordinary rates — the same schedule that applies to wages, pensions and interest (IRS — RMD FAQs; Publication 590-B).

The most common misunderstanding is that an account full of long-held stock produces long-term capital gains on the way out. It does not. Nothing inside a pre-tax account was ever taxed, so none of it retains a character — dividends, interest and thirty years of appreciation all leave as ordinary income.

An RMD is also never eligible for rollover, and if you take any distribution in an RMD year the RMD is deemed to come out first (IRS Tax Topic 413). Because you are past 59½ by definition there is no 10% early-distribution penalty; the only penalty here is the excise tax for failing to take one. State tax is separate — some states exempt retirement income, others tax it in full.

Where the RMD actually lands

Income is taxed in layers, and the RMD is not a layer of its own — it sits on top of everything else you already have. Social Security, a pension, interest and dividends fill the cheap brackets first; the RMD fills whatever is left and spills into the next one.

Take a married couple, both 74, with $95,000 of 2026 taxable income before the RMD (after the $32,200 standard deduction, so roughly $127,000 gross) and a $60,000 RMD. Using the 2026 rate schedule from IRS Rev. Proc. 2025-32:

Federal only, no state tax, no credits. 2026 brackets per Rev. Proc. 2025-32 — the figures our calculator runs on.

Without the RMD this couple would owe $10,904 — an average rate of 11.5%. With it they owe $23,524, so the RMD itself costs $12,620, or 21.0%, and the next dollar would cost 22%. It arrived last and paid the highest rates in the stack. That is why "what does the next dollar cost?" is the only useful question — and why a first-year RMD deferred to 1 April is an expensive convenience: two distributions in one calendar year, the second starting where the first finished.

How to calculate the tax on your RMD

Five steps, and the last one catches most people out.

1. Get the RMD amount. Prior-year 31 December balance divided by your life expectancy factor from the Uniform Lifetime Table (Appendix B of Pub 590-B), or the Joint and Last Survivor table if your sole beneficiary is a spouse more than ten years younger. IRAs are calculated separately but the total can come from any one; 401(k)s must each be satisfied separately.
2. Project the rest of the year's income — pension, interest, dividends, capital gains and the taxable share of Social Security.
3. Apply the brackets from where that income stops, not from zero — the stacking calculation above.
4. Add state income tax.
5. Check the thresholds. The RMD can cost far more than its bracket if it crosses an IRMAA tier, drags more Social Security into tax, or lifts modified AGI over the NIIT line.

To model the year rather than estimate it — including how the distribution interacts with a conversion or a capital gain — the calculator runs it against the 2026 schedule.

How to report an RMD on your tax return

There is no RMD line on Form 1040 and no separate RMD form. The chain is short:

• Form 1099-R arrives by 31 January. Box 1 gross, Box 2a taxable amount, Box 4 federal tax withheld, Box 7 the distribution code — normally code 7, normal distribution.
• IRA, SEP or SIMPLE (that box on the 1099-R is checked): gross to Form 1040 line 4a, taxable to line 4b.
• 401(k), 403(b) or governmental 457(b): gross to line 5a, taxable to line 5b.
• Box 4 withholding carries to line 25b as tax already paid.

Two wrinkles. For IRAs, Box 2a is often blank with taxable amount not determined ticked — the custodian cannot know your basis, so you compute the taxable share on Form 8606 if you ever made nondeductible contributions. And a qualified charitable distribution never shows on the 1099-R: report the full amount on line 4a, the taxable remainder on line 4b, and write QCD next to the line.

Note what is not reported anywhere — that a distribution satisfied an RMD. The IRS matches 1099-R totals; it never sees your calculation.

Withholding: defaults, elections and a timing trick

An RMD is a nonperiodic distribution and not an eligible rollover distribution, so the mandatory 20% that catches people on plan rollovers never applies. The default is 10% federal withholding, changed on Form W-4R. IRA owners may elect any rate from 0% to 100%; employer plans generally hold a 10% floor. State withholding follows separate rules.

Set it against your marginal rate. The couple above pay 21% on the RMD; the 10% default leaves them roughly $6,600 short before state tax, and that shortfall arrives in April with an underpayment penalty attached.

Is an RMD earned income?

No. An RMD is ordinary income, but it is not earned income and not compensation, and the distinction cuts in two useful directions.

First, it cannot support an IRA or Roth IRA contribution. Contributions require taxable compensation under IRC §219(f)(1) — wages, tips, self-employment income, taxable alimony under pre-2019 agreements. Retirement-account distributions are explicitly excluded, so a retiree living on an RMD and Social Security has no contribution room, however large the RMD. The age cap on traditional IRA contributions is gone; the compensation requirement never was.

Second, it never reduces a Social Security benefit. The retirement earnings test, which withholds benefits from claimants below full retirement age, counts only wages and net self-employment earnings. Pensions, annuities, investment income and RMDs sit outside it, and no FICA applies.

What it does not do is keep the RMD out of the tests below — it is fully in AGI, and AGI is what they run on.

What an RMD drags with it

For higher-income retirees the bracket is rarely the biggest cost. Three thresholds sit above it, and an RMD is the classic thing that tips a household over.

• IRMAA. Medicare Part B and Part D surcharges begin above $109,000 (single) and $218,000 (joint) for 2026, and they are cliffs — a dollar over a tier costs the entire step, for both spouses. The lookback is two years, so a large 2026 RMD sets your 2028 premiums. Tier table and levers in how to avoid IRMAA; the IRMAA calculator shows this year's headroom.
• Social Security taxation. Up to 85% of a benefit becomes taxable once provisional income clears $34,000 single or $44,000 joint — thresholds never indexed. Because each extra dollar of RMD can make another 50 or 85 cents of benefit taxable, the effective marginal rate through that range runs well above the nominal bracket: the "tax torpedo" covered in the withdrawals and taxes guide.
• NIIT. The 3.8% net investment income tax applies once modified AGI passes $200,000 single or $250,000 joint. An RMD is not itself net investment income — but it raises MAGI, and can pull dividends, interest and gains above the line.

Working the other way in 2026: the temporary $6,000 senior deduction per taxpayer aged 65 or over, on top of the standard deduction and phasing out above $75,000 single / $150,000 joint MAGI (IRS — OBBBA deductions for seniors).

When an RMD is not fully taxable

The default is that all of it is taxed. Four situations depart.

• Nondeductible basis. If you ever made nondeductible traditional IRA contributions, part of every distribution is a tax-free return of basis — split pro rata across all your traditional, SEP and SIMPLE IRAs combined, on Form 8606. You cannot cherry-pick the after-tax dollars.
• Roth IRAs. No lifetime RMDs for the owner, ever. Nothing to tax, nothing to report.
• Roth 401(k) and Roth 403(b). Subject to RMDs through 2023; SECURE 2.0 removed the requirement from 2024 onwards. Even then a qualified distribution was tax-free — the old rule forced the money out, it never taxed it.
• Qualified charitable distributions. From age 70½ you can send up to $111,000 (2026, indexed) straight from an IRA to charity. It counts toward the RMD and is excluded from income entirely, which is why it also keeps AGI down for IRMAA and provisional income. Full mechanics in the 2026 QCD guide.

Beyond those, reducing what an RMD costs is a planning question rather than a reporting one, and it has its own guide: how to avoid (or reduce) taxes on your RMD covers the seven legal levers.

Missing an RMD: the excise tax and Form 5329

The penalty used to be a punitive 50%. SECURE 2.0 cut it to 25% of the amount you failed to withdraw, and to 10% if you correct the shortfall within the correction window — broadly, the end of the second tax year after the year the distribution was due.

1. Take the missed distribution now, as a separate transaction. It is taxed in the year you actually receive it, not the year it was due.
2. File Form 5329 for each missed year, using that year's version. It can be filed on its own if the return has already gone in.
3. Request the waiver if you have reasonable cause. Report the shortfall, enter zero as the tax owed, write RC and the waived amount next to it, and attach a short statement of what happened and how you fixed it. The IRS grants these routinely — but only once the distribution has been made.

One quiet benefit of filing: SECURE 2.0 gives the excise tax a three-year limitations period that starts when Form 5329 is filed. Skip the form and the clock never starts.

RMD ages in 2026 and the road to 75

Under SECURE 2.0 the applicable age is 73 for anyone born from 1951 through 1959 and 75 for anyone born in 1960 or later, so the first age-75 RMDs arrive in 2033. Someone turning 73 in 2026 was born in 1953. (The statute left the 1959 cohort ambiguous; IRS proposed regulations resolve it at 73.)

Your required beginning date is 1 April of the year after you reach that age; every subsequent RMD is due by 31 December. Deferring the first is legal and frequently a mistake, for the stacking reason above. There is one true deferral — the still-working exception, which lets a non-5% owner postpone RMDs from a current employer's plan until retirement, if the plan permits. It never applies to IRAs.

Inherited accounts: same tax, different schedule

Distributions from an inherited traditional IRA are ordinary income to the beneficiary, at the beneficiary's rates, reported the same way on lines 4a and 4b — and never subject to the 10% early-distribution penalty, whatever the beneficiary's age. What changed is the timing. Most non-spouse beneficiaries who inherited from 2020 onwards must empty the account within ten years, and if the original owner had already reached their required beginning date, must also take annual distributions during those ten years — finalised by the IRS in 2024 and enforced from 2025. An inherited Roth IRA is tax-free but still faces the ten-year deadline.

The practical consequence is bracket management for a beneficiary still in peak earning years. The inherited IRA RMD calculator works out what each year requires; the inherited IRA RMD rules guide covers which beneficiary category you fall into.