Ever wonder when to start pulling money from your IRA? Most folks think it’s age 70. Think again-required minimum distributions (RMDs) now start later for many. Discover the real rules and dodge common traps!
Key Takeaways:
- RMDs start at age 73 for those born 1951-1959 and age 75 for those born 1960+, per SECURE 2.0 Act-many miss the birth-year split.
- Roth IRAs skip lifetime RMDs, unlike Traditional IRAs; conversions can reduce future RMDs but don’t eliminate them entirely.
- Missing RMDs triggers 25% penalty tax (waivable via IRS); QCDs let you avoid taxes by donating directly to charity.
- The Standard RMD Age: What the Law Says
- Traditional vs. Roth IRAs: Key Differences
- Who Must Take RMDs and When
- What Most People Get Wrong About RMDs
- How RMDs Are Calculated
- Penalties for Missing RMDs
- Strategies to Minimize RMD Impact
- Special Rules and Exceptions
- Planning for Heirs: Post-Death RMD Rules
- Action Steps Before Your RMD Year
Why RMDs Matter for Retirement Planning
RMDs control your retirement cash flow. They force taxable withdrawals from Traditional IRAs and similar plans starting at age 73.
RMDs stop you from hoarding tax-deferred money forever. Use savings for bills over time.
Withdrawals count as regular income and hike your taxes. Skip the full amount? Pay a huge penalty. Smart planning saves your cash.
Picture balancing home and health costs. Time RMDs before December 31 to match spending. Avoid extra taxes-act now!
Common Misconceptions About Withdrawal Ages
Think you can delay IRA pulls forever? Or that Roths dodge all rules? Wrong ideas lead to tax shocks.
Old info confuses Traditional vs. Roth rules. Know the truth. Skip penalties and plan smart.
Myth: RMDs start at 70 for everyone. Nope! New rules set age 73 for those born after 1959. Turn 73 in 2025? First RMD due by December 31, 2026.
Myth: Roth IRAs have zero lifetime RMDs. True for you, but heirs face them after you pass. They withdraw based on their life expectancy.
Myth: Skip RMDs on SEP or SIMPLE IRAs. No way. They start at age 73 like Traditional IRAs. Self-employed? Calculate and withdraw yearly.
- Myth: No penalties past 73. Truth: Excise tax hits undistributed cash.
- Myth: Working skips all RMDs. Truth: Withdraw by 73 unless in current employer’s plan.
- Myth: Roth conversions kill RMDs. Truth: Converted funds still factor into totals.
- Myth: Heirs skip RMDs. Truth: Withdraw within 10 years per SECURE Act.
Bust these myths. Match your withdrawals to real laws. Check retirement accounts every year. Beat tax surprises!
The Standard RMD Age: What the Law Says
Law sets exact RMD start ages. IRS Publication 590-B covers Traditional, SEP, SIMPLE IRAs, and workplace plans. Roths skip during your life.
First RMD due December 31 of the trigger year. Based on prior December 31 balance. Miss it? 25% penalty-drops to 10% if fixed fast. Savings get taxed eventually.
SECURE Acts delay RMDs by birth year. Keep money growing tax-free longer. Check IRS rules for you-avoid penalties now!
Turn 73 in 2024? First pull by April 1, 2025. Then yearly by December 31. Applies to 401(k)s too, unless working for that boss.
Current RMD Starting Age (73 for Most)
Hit 73? Annual RMDs start from Traditional IRAs and workplace plans. IRS Publication 590-B says yes for 1951-1959 births. Use Uniform Lifetime Table for math.
Here is a simple checklist to determine if age 73 applies to you:
- Birth year 1951-1959? RMDs at 73.
- Accounts: Traditional IRA, SEP, SIMPLE, 401(k).
- Owner rules, not heirs.
- Roth skips till after death.
First RMD by April 1 after 73, then December 31 yearly. Born 1955? Start in 2028. Review accounts yearly end-of-year. Dodge excise tax!
Experts recommend reviewing your retirement accounts annually near year-end to ensure compliance. This avoids the excise tax penalty on shortfalls, which hits the untaken amount directly.
Recent Changes from SECURE 2.0 Act
SECURE 2.0 bumps RMD ages. Younger folks wait till 75. Less tax pain-check IRS for your year!
Key updates include this phased approach to the starting age:
- Age 72 if turned 72 by 2022.
- Age 73: 1951-1959.
- Age 75: 1960+.
Extra time boosts growth. Avoid selling low. Heirs have faster rules after death.
Born 1960? RMDs at 75 in 2035. Convert to Roth early. Cut future taxes!
Traditional vs. Roth IRAs: Key Differences
Traditional and Roth IRAs differ on RMDs. One forces pulls; the other gives freedom. Plan withdrawals and taxes smartly.
Traditionals: RMDs at 73, taxed as income. Roths: No lifetime RMDs.
Traditionals take earned income contributions, often deductible now. Roths have income caps but grow tax-free.
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| RMD Rules (Owner) | Required starting at age 73 | None during lifetime |
| Tax Treatment | Withdrawals taxed as ordinary income | Qualified withdrawals tax-free |
| Eligibility | No income limits for contributions | Income limits apply |
| Inherited Accounts | RMDs required for beneficiaries | Often RMD-free for non-spouses |
Compare your IRAs here. Convert Traditional to Roth? Pay tax now for control later.
Traditional IRA RMD Rules
Take annual RMDs from Traditional, SEP, SIMPLE IRAs at set age. Taxed as ordinary income.
Math: Prior Dec 31 balance divided by IRS life factor (age 73 26.5).
- Balance on Dec 31 before 73.
- Pick Uniform Lifetime Table.
- Divide for minimum amount.
- Withdraw by Dec 31 yearly.
25% penalty on missed amount-10% if quick fix. See IRS 590-B or tax pro.
Roth IRA RMD Exemptions (Lifetime)
Roth owners skip lifetime RMDs. Funds grow tax-free-no forced pulls.
Leave money past 73. Follow 5-year rule for tax-free cash.
Check statements and Form 5498 for 5-year hold. Great for heirs-no rush RMDs like Traditionals.
Experts recommend Roth for heirs, as lifetime flexibility preserves more wealth. Non-spouse beneficiaries inherit without immediate RMDs, unlike Traditional accounts.
Inherited IRA RMD Exceptions
Inherited Roths often skip RMDs for non-spouses. SECURE Act changed post-2019 rules.
Spouses treat as own-no RMDs till their age. Non-spouses: Empty in 10 years.
- Minors/disabled get stretches.
- Post-death Roth pulls: Tax-free if qualified.
- Traditional heirs: Annual RMDs by their age.
Check IRS on SECURE Act. Pick beneficiaries to max Roth tax wins.
Who Must Take RMDs and When
RMDs depend on birth year and account. Deadlines: April 1 or Dec 31.
Traditional, SEP, SIMPLE, most workplace plans need RMDs at age. Roth owners skip lifetime. Owner pulls from each plan.
Plan early. 25% penalty hurts-use table below!
| Birth Year | RMD Age |
|---|---|
| 1951-1959 | 73 |
| 1960 or later | 75 |
SECURE 2.0 rules. Estimate RMDs early with balances and factors. Match your taxes and spending.
Age 73 Rule for Those Born 1951-1959
Born 1951-1959? RMDs start year you hit 73.
Turn 73 in 2024? First by Dec 31, 2024 from prior balance. Aggregate IRAs only-work plans separate.
Review fall statements. Dec 31 deadline-set alerts! Penalties bite.
Current job plan? Delay if under 5% owner. Inherited? Different rules. Optimize rollovers.
Age 75 Rule for Those Born 1960 or Later
Born 1960+? Wait till 75 per SECURE 2.0.
More growth time! Turn 75 in 2035? Start then. Convert Roths early.
Project now! Balance forecasts, tax brackets, QCDs. Adjust portfolios for long life.
Keep an eye on legislative changes. Rules change fast. Talk to advisors about delaying RMDs. See how it fits your withdrawal plan with multiple accounts. Beneficiaries follow uniform rules after your death.
First RMD Deadline (April 1 vs. December 31)
You can delay your first RMD until April 1 the year after you turn the required age. All later ones must come by December 31.
Delaying gives extra time. But it risks double withdrawals next year. Turn 73 in 2025? Take first RMD by April 1, 2026 or December 31, 2025. Pick April 1, and face two RMDs in 2026. That could bump you into a higher tax bracket.
| Option | Pros | Cons |
|---|---|---|
| December 31 (year you turn 73) | No double hit. Spreads out taxes. | Less calculation time. |
| April 1 (next year) | More planning time. Maybe lower tax year. | Double withdrawal next year. Higher taxes. |
Check your income sources first. Retired with low 2025 income? Take it early to cut taxes. Document every distribution. Prove compliance and dodge penalties.
What Most People Get Wrong About RMDs
People mess up by thinking they can skip RMDs. Or convert to Roth and forget withdrawals. Or ignore them if they have other cash. Result? Big IRS penalties and tax shocks.
Myth: You Can Skip RMDs Without Penalty
Skip RMDs? You pay excise taxes even if you don’t need the money. IRS hits you with 25% on undistributed amounts from traditional IRAs and similar plans. Starts at age 73.
Penalty calculation: Subtract distributions taken from required amount by Dec 31. Fix late? Tax drops to 10%. Many miss first RMD deadlines and pay up.
File Form 5329 for waivers. Explain reasonable cause like illness. Approval not guaranteed. Beat it by complying early. Don’t forget workplace plan RMDs if employed.
Set calendar alerts for yearly RMDs. Check calculations with a tax advisor using Dec 31 balance and life tables. Protect your retirement plans for heirs.
Myth: Roth Conversions Eliminate All RMDs
Roth conversions skip future RMDs on converted money. But take current year’s RMD from traditional IRA first. No dodging today’s rules.
Conversions tax the shifted amount. Roth IRAs skip owner lifetime RMDs. Beneficiaries have their rules later. 5-year rule delays qualified pulls.
Convert in low-tax years before 73. Do portions yearly to fill low brackets. Keep more for heirs. Skip owner RMDs on Roth parts.
Working? 401(k)s may delay RMDs. IRAs don’t. Track each account type. Model taxes over years for best results.
Myth: RMDs Are Optional If You Don’t Need the Money
IRS demands RMDs even with plenty of other income. Mandatory for traditional IRAs, SEP, SIMPLE plans. Stops endless tax-deferred growth.
After RMD, reinvest in taxable brokerage or convert to Roth. Buy dividend stocks or bonds outside IRA. Grow without IRS limits.
Use QCDs for charity. Send up to $105,000 direct from IRA tax-free. Counts as RMD if over 70.5. Add Roth ladders for flexibility.
Review balances each December. Working past 73 delays some employer RMDs, not IRAs. Time withdrawals to cut taxes. Boost beneficiary inheritances.
How RMDs Are Calculated
RMD = prior year-end balance divided by life expectancy factor from IRS tables. Matches your expected lifespan. Applies to traditional, SEP, SIMPLE IRAs over 73.
Grab Dec 31 prior year balance. Divide by Uniform Lifetime Table factor for your age. Example: $500,000 at 73, factor 26.5 = ~$18,868 RMD.
Multiple accounts? Calculate each separately. Withdraw total from one IRA. Roth IRAs skip lifetime RMDs. Check accounts yearly to skip 25% penalties.
Track balances early. Use custodian calculators. Plan taxes without shocks.
Uniform Lifetime Table Explained
Uniform Lifetime Table gives periods by age. Assumes spouse 10 years younger. Use for most without older sole beneficiary. Factors drop yearly, RMDs rise.
Age 73 factor: 26.5. $400,000 balance / 26.5 = ~$15,094 RMD. Age 74: 25.5, higher pull.
Get official table from IRS. Use custodian calculators. Verify with latest IRS pubs.
Simplifies traditional IRA withdrawals. Default for joint life expectancy. Adjust for non-spouse or older beneficiary.
Factors Affecting Your RMD Amount
Markets, contributions, withdrawals change your RMD base. Big gains pump Dec 31 balance and next RMD. Late SEP/SIMPLE adds do too.
Withdraw early to shrink future base. Skip late contributions if cutting RMDs.
- Market volatility: Gains boost RMDs. Losses cut them.
- Withdrawals: Big ones shrink next base.
- Contributions: Add to balance.
- Conversions: To Roth lowers IRA RMDs.
Control tax liability with these. Talk to advisor about QCDs for high RMDs.
Using Account Balance from Prior December 31
RMD uses fair market value on Dec 31 prior year. Custodians report to IRS. Captures year-end ups and downs.
Multiple IRAs: Calc each RMD separate. Pull total from any. Example: $200k + $300k IRAs. Withdraw sum from one by Dec 31.
Annual review checklist:
- Check Dec 31 statements.
- Find age factor in Uniform Table.
- Divide for each account RMD.
- Total and withdraw by year-end.
Inherited IRAs differ by beneficiary rules. Track employer plans if working. Stay compliant, skip penalty taxes.
Penalties for Missing RMDs
Miss RMDs? Pay big excise taxes. Waivers possible for real errors. Hits traditional, SEP, SIMPLE IRAs over 73.
Miss by Dec 31? Tax on shortfall. $10k RMD, withdraw $8k = $2k taxed. Plan ahead!
25% Excise Tax (Reduced from 50%)
Penalty: 25% of undistributed RMD. Down from 50% to push compliance. Hits IRAs and 401(k)s post-73.
Calc: Dec 31 balance / life factor = RMD. Subtract what you took. Shortfall x 25%.
Example: $20k RMD, take $15k. $5k short = $1,250 penalty. File on Form 5329.
Fix by tax deadline? Drops to 10%. Act fast on misses!
How to Waive the Penalty
Waive via Form 5329. Explain error, show fix. IRS okays for good cause like calc mistakes.
- Take missed RMD ASAP, before taxes.
- Form 5329: Enter penalty on line 52, write RC next to it.
- Attach explanation and proof.
- Mail to IRS for your state.
Prove with statements of withdrawal and balances. Keep records 3 years. Show no willful error for approval.
IRS Correction Programs
EPCRS fixes missed RMDs in workplace plans like 401(k)s. IRA owners self-correct too.
Take missed amount. Document it. Often skips penalties without IRS okay first.
Voluntary fixes protect savings. Check IRS for Roth 401(k) rules.
Strategies to Minimize RMD Impact
Cut taxable RMDs with QCDs and Roth conversions. Manage them like a pro. Slash tax hits on retirement cash.
Check IRA balance and tax bracket. Convert chunks to Roth over time. Add charity gifts.
Plan years before RMD age. Factor cash needs and heirs. Get tax pro help now!
Try timing withdrawals smartly. Use inherited IRA rules to keep more cash in your retirement plans and boost security for you and your loved ones.
Qualified Charitable Distributions (QCDs)
Over 70? Direct up to $105,000 a year from your IRA to charities. These Qualified Charitable Distributions (QCDs) count as your RMD tax-free and skip your taxable income – perfect for giving retirees!
Contact your IRA custodian for a direct transfer. Pick a qualified 501(c)(3) charity – a nonprofit approved by the IRS – and finish by December 31.
- Verify eligibility: Age 70 or older, from Traditional, SEP, or SIMPLE IRA.
- Select reputable charities via IRS tools or advisor input.
- Request a QCD form from your custodian for proper documentation.
Report QCDs on your taxes. They lower your adjusted gross income and protect your estate for heirs – talk to a pro to dodge mistakes like overdoing contributions.
Roth Conversion Ladders Before RMD Age
Start Roth conversions before RMDs hit. Move funds gradually to tax-free growth and shrink your Traditional IRA balance.
Convert small chunks yearly to stay in low tax brackets. Slash your lifetime taxes now!
Build a ladder in low-income years like early retirement. Pay taxes from other cash if you can.
Your converted funds grow tax-free with zero lifetime RMDs. Exciting growth ahead!
- Assess current and future tax brackets for optimal timing.
- Convert up to the top of your desired bracket each year.
- Plan five-year holding periods for penalty-free access if needed.
Convert $50,000 a year from Traditional to Roth over 10 years. This cuts your IRA balance for RMDs at 73.
Heirs love Roths – flexible withdrawals, no lifetime RMDs!
Delaying First RMD to Age 74
Delay your first RMD to April 1 for one extra year of growth. But plan for two withdrawals next year.
Got cash outside IRAs? Weigh the tax hit from double dips.
Pros include extra time for account growth and flexibility in low-income years. Cons involve bunching income, which might push you into higher brackets. Plan for the following year’s double RMD hit.
- Pros: More growth time and flexibility in lean years.
- Cons: Income bunching spikes your tax bracket. Brace for double RMD next year!
Great if you keep working or have other assets. It delays taxes – get advisor help to skip penalties!
Special Rules and Exceptions
Work still? Or mixing accounts? Special rules change your RMD needs across Traditional, Roth, SEP, and SIMPLE IRAs.
Master them to dodge penalties and nail your retirement plan!
401(k)s tie exceptions to your job status starting at 73. Multiple IRAs? Aggregate them for RMD calc.
Inherited IRAs pile on rules for heirs.
Match these to standard rules. Avoid over-withdrawing one account while skipping another.
Review your full portfolio by December yearly. Stay compliant!
Divorce or death sparks special timelines. Update beneficiaries fast to ease heir hassles.
Get personal advice on Traditional IRA withdrawals now!
Working Past RMD Age (401(k)s Only)
Still working past RMD age? Delay 401(k) payouts from your employer’s plan. IRAs don’t get this break.
Grow your retirement balance tax-deferred longer!
Stay with the same employer past 73. Retire or switch? RMDs kick in next year.
Rollover to IRA post-job? RMDs start right away.
- Remain employed with the same sponsor after reaching RMD age.
- Avoid rollovers to IRAs, which lack this delay option.
- Calculate RMDs separately for each workplace plan if you have multiple.
Nearing retirement? This gives healthy folks flexibility. Check with your plan admin on eligibility and first RMD year.
Cut tax hits from payouts!
RMDs for Multiple IRAs
Add up RMDs from all Traditional IRAs – including SEP and SIMPLE. Withdraw from any mix.
Roth IRAs skip RMDs while you’re alive. Simple!
Use prior year’s Dec 31 balance and IRS Uniform Lifetime Table for your age. Pull total from one IRA or split – hit the full amount by Dec 31.
Miss it? Face a big tax penalty!
Example: Two IRAs, $20,000 total RMD. Take $12,000 from one, $8,000 from the other.
Audit yearly. Calc 401(k)s separately – no mixing with IRAs.
Recharacterize pre-year-end if needed. Always hit the total first.
Easier admin, steady retirement income minus extra taxes!
Divorce and Inherited IRA Complications
Divorce splits IRAs? Ex-spouses get inherited RMD duties. Use a QDRO for tax-free transfer – recipient follows new beneficiary rules.
Update designations ASAP!
Ex-spouse inherits Traditional IRA? They take RMDs on their life expectancy starting next year. Differs from death cases based on owner’s RMD status.
Roths similar for heirs, no owner RMDs.
- Secure a QDRO to divide the account tax-free.
- Name the ex-spouse as sole beneficiary on the new inherited IRA.
- Begin RMDs by December 31 of the year following the transfer.
Non-spouses: Strict 10-year rule post-SECURE Act. Spouses can treat as own.
Check beneficiary RMD sections. Get pro help to guard your retirement balance!
Planning for Heirs: Post-Death RMD Rules
Pick beneficiaries wisely – death speeds up their RMDs. New rules hit heirs harder on taxes and planning.
Bake this into estate planning. No shocks for loved ones!
Parent names kids? 10-year rule empties IRA by year 10 post-death. Bad plan = huge tax bombs if they dump it all at once.
Review forms yearly!
Spouses get flexibility. Non-spouses face tight timelines on Traditional and Roths.
Trusts complicate things, shorten periods. Smart picks preserve family wealth!
Heirs: See tax pros fast for strategies. Cut penalties and taxes.
Make your IRA a family legacy!
10-Year Rule for Non-Spouse Beneficiaries
Non-spouses: Drain most inherited IRAs in 10 years. Covers Traditional, SEP, SIMPLE, Roths per IRS updates.
Finish by Dec 31 of year 10!
Most kids, siblings hit full 10 years. Spread annual withdrawals evenly or late – miss deadline, pay 25% penalty.
Even spreads tame tax brackets!
- Adult children often face the full 10-year clock from the date of death.
- Siblings or friends must deplete the account similarly.
- Non-person entities like estates have just five years in some cases.
Die 2025 with $500k IRA? Heirs empty by 2035. Pre-plan with lifetime RMDs to lighten load.
Model with planners!
Spouse Beneficiary Options
Spouses: Treat inherited IRA as your own. Delay RMDs to your age 73 using your life expectancy.
Max control!
Or stay beneficiary (10-year drain) or rollover to your IRA. Remarriage OK – update forms to skip fights.
| Option | Description | Key Benefit |
|---|---|---|
| Treat as Own | Assume owner’s RMD age and schedule | Delays distributions longest |
| Beneficiary IRA | Take RMDs based on spouse’s life expectancy | Flexible timing until death |
| Rollover | Move to personal IRA | Simplifies management |
Widow rolls over hubby’s $300k Roth IRA – no instant taxes. Keeps tax-free growth till her RMDs.
Weigh taxes and cash needs!
Eligible Designated Beneficiaries
Minor kids, disabled folks get longer than 10 years. IRS okays life-expectancy RMDs for eligible designated beneficiaries.
Stretch that IRA for decades!
- Minor children until age 21, then switch to 10-year rule.
- Disabled or chronically ill heirs use their life expectancy.
- Beneficiaries not more than 10 years younger than the owner.
Document disabilities for IRS OK. Team with estate lawyers for qualifying trusts.
Max inheritance, min taxes for vulnerable heirs!
Action Steps Before Your RMD Year
Year before RMDs: Prep to skip penalties and cut taxes. Helps retirement age owners plan Traditional, SEP, SIMPLE withdrawals.
Start now – match your goals!
Build an urgent timeline checklist:
- Jan: Review accounts.
- June: Project RMDs.
- Sept: Pro consults.
- Dec: Final tweaks pre-73.
Experts recommend quarterly check-ins on account balances and tax strategies. Consider Roth conversions to reduce future required minimum distributions. This approach minimizes the tax penalty of 25% on missed withdrawals.
- Quarterly check-ins on balances and strategies.
- Do Roth conversions to shrink future RMDs.
- Dodge 25% penalty!
Ask pros to model QCDs, multi-accounts. Bundle or delay to Dec for smooth shifts on work or inherited IRAs.
Review Account Balances Early
Grab statements from all custodians by prior Sept. Project RMD for Traditional, SEP, SIMPLE IRAs.
Roths exempt till death.
Follow this 5-step review process:
- Collect year-end statements from December 31 of the prior year.
- Sum balances across all applicable retirement accounts.
- Use the IRS Uniform Lifetime Table to estimate the distribution amount based on your age.
- Project growth or contributions that affect the next year’s balance.
- Adjust for any prior-year withdrawals taken late.
Use Excel or custodian calculators. Example: $500k in two Traditional IRAs forecasts age 73 RMD.
Track work plans separate.
Annual reviews catch value errors. Stop under-withdrawals and penalties.
Plan Dec distributions!
Consult Tax Professional
CPA or advisor models QCDs, conversions, multi-accounts. They slash taxes on Traditional RMDs.
Start mid-year pre-RMD!
Ask these key questions:
- How can I time withdrawals to stay in a lower tax bracket?
- What are the benefits of converting to Roth before RMDs start?
- Should I aggregate distributions across SEP, SIMPLE, and traditional IRAs?
Find CPAs skilled in retirement planning. Seek certified financial planners experienced with post-72 rules.
They simulate bundling your first distribution. They also model QCDs for charity to cut taxable income.
Talk about life events like job changes. Discuss how they impact workplace plans.
Model your heirs’ tax burdens from inherited IRAs. These steps create the best withdrawal plan and dodge surprises.
Update Beneficiary Designations
Review IRA beneficiaries now. Align them with your estate plan to slash heir tax burdens.
Primary and contingent designations decide how accounts pass on after death. Outdated forms cause wrong distributions and bigger taxes.
Pick a primary beneficiary like your spouse first. Add contingents such as kids or trusts.
For example, name your spouse primary and kids contingent on traditional and Roth IRAs. Spouses can treat inherited funds as their own and delay RMDs.
Review after big life events like marriage or divorce. Check every two years or before age 73.
Non-spouse heirs must withdraw within 10 years. This ramps up their tax hit.
Match designations with your estate plan. Skip probate delays this way.
Update SEP or SIMPLE IRA forms directly with custodians. Get smooth transfers and keep wealth for your beneficiaries.
