Required Minimum Distributions: Rules, Deadlines, and Tax Impact

Missing One RMD Once Cost a 25% Penalty — SECURE 2.0 Cut That in Half

Required Minimum Distributions are mandatory annual withdrawals the IRS forces from most tax-deferred retirement accounts starting at a specific age. The logic is simple: you deferred taxes for decades, and the government eventually demands its share. The SECURE 2.0 Act, enacted in December 2022, extended the starting age to 73 (and eventually 75) and slashed the penalty for missing a distribution from 50% to 25% — or 10% if corrected promptly. Those changes affect every retiree's withdrawal planning horizon significantly.

RMD Starting Ages Under SECURE 2.0

The required beginning date — the deadline for your very first RMD — depends on your birth year. SECURE 2.0 created a phased schedule.

The Required Beginning Date (RBD) deadline for the first RMD is April 1 of the year following the year you reach RMD age. All subsequent RMDs must be taken by December 31. Delaying the first RMD until April 1 means taking two RMDs in one calendar year — the delayed first plus the second — which may push you into a higher bracket and increase Medicare IRMAA exposure.

Which Accounts Require RMDs

RMD rules apply broadly to tax-deferred accounts, with one major exception: Roth IRAs. Roth 401(k)s were also exempted from RMDs starting in 2024 under SECURE 2.0.

• Require RMDs: Traditional IRAs, SEP-IRAs, SIMPLE IRAs, traditional 401(k)s, 403(b)s, 457(b)s, and most employer-sponsored defined contribution plans
• Do not require RMDs: Roth IRAs (owner's lifetime), Roth 401(k)s (starting 2024 under SECURE 2.0)
• Still Work Exception: If you are still employed at the company sponsoring your 401(k), you can delay RMDs from that specific plan until April 1 after you retire — but only if you own less than 5% of the company. This exception does not apply to IRAs.

How RMDs Are Calculated

Each year's RMD is calculated by dividing the prior year-end account balance by a life expectancy factor from IRS Uniform Lifetime Table III (or, for certain spousal accounts, Joint and Last Survivor Table II). The IRS updated these tables in 2022 to reflect longer life expectancies, reducing RMD amounts slightly.

If you hold multiple traditional IRAs, you must calculate an RMD for each one, but you can aggregate the total and withdraw it from any single IRA or combination you choose. The same aggregation rule applies to 403(b) accounts. However, 401(k) RMDs cannot be combined with IRA RMDs — each 401(k) plan must satisfy its own distribution separately.

The Penalty for Missing an RMD

Under SECURE 2.0, the excise tax for failing to take an RMD dropped from 50% to 25% of the shortfall amount. If you correct the missed RMD within the "correction window" (generally by the end of the second tax year following the missed year), the penalty drops further to 10%. You file Form 5329 to report missed RMDs and pay the penalty, and you can request a waiver by attaching a statement explaining the reasonable cause for the error. The IRS has historically been lenient for first-time, good-faith mistakes.

Strategies to Reduce Taxable RMD Impact

Large RMDs can trigger a cascade of tax consequences: higher Medicare premiums, Social Security taxation, and capital gains rate bracket creep. Several legal strategies minimize these effects.

• Roth conversions before RMD age: Converting traditional IRA balances to Roth reduces the pre-tax account balance subject to future RMDs. Even converting $20,000–$50,000 per year in low-income years after 60 shrinks the eventual RMD base substantially.
• Qualified Charitable Distributions (QCDs): Taxpayers age 70½ or older can direct up to $108,000 (2025 limit, indexed annually) directly from an IRA to a qualified charity. The QCD satisfies RMD requirements but is excluded from gross income — a significant advantage over deducting a charitable contribution, which only benefits itemizers.
• Still-working exception: Deferring RMDs from your current employer's 401(k) while converting old IRA funds to Roth reduces the compounding balance subject to future mandatory withdrawals.
• Account consolidation timing: Rolling 401(k) funds into a traditional IRA before the RMD start date consolidates assets but also starts the IRA RMD clock sooner than the still-working exception would allow.

RMDs After Death: Inherited Account Rules

When an account owner dies, RMD rules shift substantially for beneficiaries. Non-spouse beneficiaries generally must empty the account within 10 years under the SECURE Act's 10-year rule, enacted in 2019. Annual distributions within that window are required in most cases following IRS guidance issued in 2024. Spouses have more flexibility, including the option to treat the inherited IRA as their own. Rules for inherited accounts differ enough to warrant separate analysis — especially post-SECURE 2.0 rule updates that affect eligible designated beneficiaries.

This article is for informational purposes only and does not constitute financial or tax advice.