Traditional IRAs and 401(k) plans let you invest pre-tax dollars and deduct contributions from taxable income in the present. In exchange, you will pay income tax on the contributions and any investment gains in the future.
That tax bill cannot be delayed indefinitely. Tax-deferred retirement accounts are subject to required minimum distribution (RMDs), meaning account holders after reaching a certain age must withdraw a sufficient amount of money each year.
RMDs can be complicated, especially because the rules change periodically. For instance, the Secure 2.0 Act passed in 2022 raised the age at which RMDs begin and reduced the penalty for noncompliance. Read on to learn more about those two modifications.
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1. The Secure 2.0 Act raised the age at which RMDs begin
The age at which required minimum distributions (RMDs) begin depends on when you were born, but the thresholds have gradually increased over time. The Secure 1.0 Act raised the starting age from 70 1/2 to 72 for individuals born on or after July 1, 1949. The Secure 2.0 Act raised the starting age from 72 to 73 for individuals born on or after Jan. 1, 1951.
The chart below provides a consolidated view of when RMDs begin.
|
Accountholder's Birth Date |
Age When RMDs Begin |
|---|---|
|
Before July 1, 1949 |
70 1/2 |
|
July 1, 1949, to Dec. 31, 1950 |
72 |
|
Jan. 1, 1951, to Dec. 31, 1959 |
73 |
|
After Dec. 31, 1959 |
75 |
RMDs on traditional 401(k) plans and traditional IRAs (including SEP IRAs and SIMPLE IRAs) are mandatory once you reach the age listed in the chart regardless of employment status. In most cases, RMDs must be completed by Dec. 31; the only exception is the first distribution, which can be delayed until April 1 of the following year.
Here is an example: Tim turned 73 years old in 2025, which means he is now required to take RMDs. He may choose to delay the first mandatory distribution until April 1, 2026, but the second distribution must still be completed by Dec. 31, 2026. Additionally, every subsequent distribution must be completed by Dec. 31.
It's worth mentioning that the Secure 2.0 Act eliminated RMDs on Roth 401(k) plans or Roth 401(b) plans. Prior to the legislation, there was a discrepancy in that Roth 401(k) and Roth 403(b) account holders had to make annual withdrawals, but Roth IRA account holders did not. Importantly, beneficiaries of Roth accounts are still subject RMD rules.
2. The Secure 2.0 Act reduced the penalty for RMDs not completed on time
RMD amounts are calculated by dividing the relevant account balance from Dec. 31 (in the prior year) by a life expectancy factor found in one of three tables published by the IRS. The circumstances that determine which table you should use are detailed below:
- Table I (Single Life Expectancy): Beneficiaries use this table to calculate RMDs.
- Table II (Joint and Last Survivor Life Expectancy): Account owners use this table if their spouse is the sole beneficiary and more than 10 years younger.
- Table III (Uniform Lifetime): Account owners use this table if their spouse is not the sole beneficiary, or if their spouse is the sole beneficiary but not more than 10 years younger.
Failure to take your RMD before the deadline results in an excise tax penalty equal to 25% of the amount not withdrawn. Prior to the Secure 2.0 Act, the IRS could charge as much as 50%. However, if the error is corrected within two years (i.e., the withdrawal is completed), the penalty is reduced to 10%.
If you miss your RMD deadline, you must submit a Form 5329 along with your tax return. If you correct the problem immediately and can show the shortfall was due to a reasonable error, you can request that the IRS waive the penalty entirely by attaching a letter of explanation to the Form 5329.
