Your annual RMD is calculated by taking your traditional account balances as of December 31 of the previous year and dividing by a life expectancy factor from the IRS Uniform Lifetime Table (found in Publication 590-B). For example, if you are 74 years old, your life expectancy factor is 25.5. If your pre-tax accounts total $1,000,000 on December 31, your forced distribution for the year is:
This $39,215 is added directly to your ordinary income on Form 1040. If you fail to withdraw the RMD by the deadline (December 31 each year, or April 1 of the year after you turn 73 for your first RMD), the IRS levies an excise tax of 25% on the undistributed amount—though this penalty is reduced to 10% if you correct the error within a two-year correction window.
Because RMDs are taxed as ordinary income, they act as a tax bomb that can push you into higher brackets, trigger IRMAA premium surcharges, and increase the taxation of your Social Security benefits.