Retirees born between 1951 and 1959 generally must start taking required minimum distributions (RMDs) at age 73, with the starting age rising to 75 for those born in 1960 or later. The figure that matters: missing the Dec. 31 deadline triggers a 25% excise tax penalty on the shortfall.
What RMDs Are and Why They Exist
Required minimum distributions (RMDs) are the minimum amounts U.S. tax law mandates individuals withdraw annually from traditional IRAs and employer-sponsored retirement plans, paying income tax on those withdrawals. The purpose is to prevent indefinite tax deferral and ensure retirement funds aren’t left as untaxed inheritances. RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and most workplace plans like 401(k)s and 403(b)s. Roth IRAs and Roth 401(k)s are exempt during the owner’s lifetime.
Current Rules and Penalties
Under the SECURE 2.0 Act, those born between 1951-1959 must begin RMDs at 73, while those born in 1960 or later start at 75. Retirees can reduce this penalty to 10% by correcting the error within the IRS correction period, typically two years. The IRS may waive the penalty entirely for reasonable errors if promptly addressed.
Inherited IRAs and the 10-Year Rule
For IRAs inherited after 2019, most beneficiaries must empty the account within 10 years of the original owner’s death. If the original owner had already started RMDs, beneficiaries must take annual distributions in years one through nine, not just a lump sum in year 10. This rule excludes surviving spouses, minor children, disabled heirs, and those not more than 10 years younger than the owner.
Strategies to Minimize Tax Impact
Roth conversions allow moving pre-tax retirement savings into a Roth IRA, reducing future RMD balances and providing tax-free growth. This strategy is most effective for retirees who haven’t yet reached RMD age, potentially converting funds at lower tax rates. Qualified Charitable Distributions (QCDs) let those aged 70½ or older donate up to $111,000 directly from their IRA to charity in 2026, excluding the amount from taxable income. Both strategies can lower future RMDs and tax liabilities.
The bottom line: retirees must carefully manage RMDs to avoid penalties and optimize tax efficiency. Consult a financial advisor or tax professional to tailor these strategies to your situation.
Sources
- Required minimum distribution
- How the Inherited IRA 10-Year Rule Works Under the SECURE Act | Chase
- Retirees who miss their required minimum distribution can owe the IRS 25% of the amount they failed to withdraw
- 4 year-end financial questions for retirees, pre-retirees to ask
- Fidelity Calculates the RMD on Your Own IRA Automatically. On the IRA You Inherited From Your Mother It Calculates Nothing Unless You Ask, and 2026 Is the Second Year the IRS Is Charging the 25% Penalty
Photo: Scott Graham / Unsplash (Unsplash License)
