Required Minimum Distributions: The Rules Behind the Deadline
The deal behind every traditional IRA and 401k was always temporary: no taxes on the way in, no taxes on the growth, but eventually the IRS collects. Required minimum distributions are the eventually. Starting in your 70s, the government requires you to withdraw a minimum amount from tax deferred accounts each year and pay ordinary income tax on it, whether you need the money or not.
The rules have shifted twice in recent years, which is why so much conflicting information circulates, and the penalty for getting it wrong remains one of the steepest in the tax code. Here is a plain English tour of how RMDs work today, offered as general education rather than advice for any one account owner.
When do required minimum distributions start?
Required minimum distributions currently begin at age 73 for people reaching RMD age now, and the starting age rises to 75 for those born in 1960 or later. Your first RMD can be delayed until April 1 of the year after you turn 73, and every RMD after that is due by December 31 each year.
The recent rule changes explain the confusion at kitchen tables: the age was 70 and a half for decades, moved to 72 in 2020, then to 73 in 2023, with 75 already scheduled. Whatever age applied to a parent or an older friend may simply not be your age.
How the amount is calculated
The formula is simpler than its reputation. Take each account’s balance on December 31 of last year, divide it by a life expectancy factor from the IRS Uniform Lifetime Table, and the result is that year’s minimum. At 73 the factor is about 26.5, which works out to a withdrawal of roughly 3.8 percent of the balance. The factor shrinks each year, so the required percentage climbs slowly as you age.
Which accounts count, and how they combine, trips people up more than the math. Traditional IRAs, SEP and SIMPLE IRAs, and workplace plans like 401ks all have RMDs. Multiple IRAs can be aggregated, calculate each, then take the total from whichever IRA you like, but each 401k generally requires its own separate withdrawal. Roth IRAs have no lifetime RMDs at all, and as of 2024, Roth 401k accounts no longer do either. Custodians will calculate the number for you, but the responsibility for taking it stays with the account owner.
The first year decision that doubles up
That April 1 grace period for the first RMD looks like a gift and often behaves like a trap. Delaying the first withdrawal into the next calendar year does not cancel that next year’s RMD, so the delayer takes two RMDs in a single tax year. Stacked distributions can push income into a higher bracket, drag more Social Security into taxation, and, through the two year lookback, raise Medicare premiums via IRMAA down the road.
Sometimes the delay genuinely helps, for instance when someone retires late in a high income year and next year’s bracket will be far lower even with two RMDs inside it. The point is that the first RMD involves an actual decision with a deadline, and the right answer comes from comparing two years of projected income, not from taking the extension because it exists.
Penalties, and what happens if you miss one
The penalty for a missed or short RMD is an excise tax of 25 percent of the amount not taken, reduced to 10 percent if the mistake is corrected within a two year correction window. That is gentler than the old 50 percent penalty, but still severe next to any other common tax misstep.
The IRS also provides a mercy path: take the missed distribution as soon as the error is discovered, file Form 5329, and request a penalty waiver with a reasonable cause explanation. Waivers are granted routinely for genuine oversights that get fixed promptly. Most misses trace to mundane causes, an inherited account nobody realized had its own rules, a forgotten old 401k, or a December distribution that never got scheduled, which is why a simple year end checklist prevents nearly all of them.
QCDs and other ways retirees manage the impact
The most discussed pressure valve is the qualified charitable distribution. From age 70 and a half, IRA owners can send money directly from the IRA to charity, and those dollars count toward the RMD while never appearing in taxable income, a cleaner result than withdrawing and donating separately. The annual QCD limit is over $100,000 per person and now adjusts for inflation. For charitably inclined retirees, it is often the single most efficient giving tool available.
Other levers get pulled earlier. Some people still working past RMD age can delay RMDs from their current employer’s 401k under the still working exception, though never from IRAs. Others shrink future RMDs in advance through Roth conversions during lower income years, trading tax now for smaller forced income later. Each lever has qualifiers and paperwork, which is exactly where professional guidance earns its keep.
Bottom Line
RMDs start at 73 for today’s retirees, run on a December 31 deadline with one tricky April 1 exception in the first year, and carry a 25 percent penalty that is usually avoidable with a calendar and occasionally waivable with a form. Tools like QCDs and earlier Roth conversions can soften the tax impact, but the right combination depends on your accounts, brackets, and giving plans, so talk through your specific situation with a licensed professional. The team at Clarity Insurance & Retirement in Winchester helps neighbors build exactly that year end checklist.
Related reading: Roth Conversion Basics: What You Are Really Trading, How Taxes Work in Retirement: A Plain English Primer
