Required minimum distributions (RMDs) are mandatory annual withdrawals from tax-deferred retirement accounts like 401(k) plans and traditional IRAs. The IRS enforces RMDs to ensure income tax is eventually paid on contributions and any gains that were allowed to grow in a tax-free environment.
RMD rules change periodically due to legislative updates. For instance, the Secure 1.0 Act (passed in 2019) increased the age at which RMDs begin and introduced a mandatory 10-year liquidation rule for retirement accounts inherited by most nonspousal beneficiaries.
Similarly, the Secure 2.0 Act (passed in 2022) once again increased the age at which RMDs begin, exempted Roth 401(k) plans from RMDs during the original account holder's lifetime, and reduced the excise tax penalty assessed for failing to complete RMDs on time.
Here are the important details.
Image source: Getty Images.
1. The Secure 1.0 Act and the Secure 2.0 Act increased 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 table provides details.
|
Account Holder's Birth Date |
Age When RMDs Begin |
|---|---|
|
Before July 1, 1949 |
70 ½ |
|
July 1, 1949, to December 31, 1950 |
72 |
|
January 1, 1951, to December 31, 1959 |
73 |
|
After December 31, 1959 |
75 |
Data source: Internal Revenue Service. Table by author.
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 your employment status. RMDs must generally be completed by Dec. 31, but the first distribution can be delayed until April 1 of the following year. In either case, all subsequent distributions must be completed by the end of each year.
An example: Chris turns 73 in 2026. He has savings in a traditional IRA. He can delay his first RMD until April 1, 2027. But the second RMD must be completed by Dec. 31, 2027, no matter when Chris chooses to take his first RMD.
2. The Secure 2.0 Act exempted Roth 401(k) plans from RMDs while the original account holder is alive
A discrepancy existed prior to the Secure 2.0 Act in that RMD rules applied to Roth 401(k) plans but not Roth IRAs. The legislation exempted Roth 401(k) plans from RMDs while the original account holder is alive. But once either account type is inherited by a beneficiary, RMD rules apply.
If the original account holder died before RMDs started, spousal beneficiaries can either keep the assets in the inherited account, in which case they can delay RMDs until withdrawals would have been mandated for the original owner, or roll the assets into their own account, in which case surviving spouses can delay RMDs until they reach the required age.
Importantly, nonspousal beneficiaries at least 10 years younger than the original account holder must generally follow the 10-year rule. That means the inherited retirement account must be liquidated within 10 years of the original owner's death.
Prior to the Secure 1.0 Act, nonspousal beneficiaries could take RMDs based on their own life expectancy, but that is no longer an option unless the original account holder died before the legislation became effective in 2020.
3. The Secure 2.0 Act reduced the penalty charged when RMDs are not completed on time
Previously, the IRS could charge a 50% excise tax penalty if you neglected to complete your RMD before the deadline. But the Secure 2.0 Act reduced that penalty to 25%, and it can be further reduced to 10% if the error is fixed within two years. Anyone who fails to complete an RMD before the deadline must file an IRS Form 5329 with their federal tax return.
Importantly, the penalty can be waived entirely if the account owner corrects the error immediately and attaches a letter of explanation to the Form 5329 that establishes the RMD shortfall was due to a reasonable error.
