When Should You Start Taking Required Minimum Distributions?
Knowing when to begin taking Required Minimum Distributions (RMDs) can protect your retirement savings from unnecessary taxes and penalties. Generally, the clock starts at age 73, but several exceptions and strategies can shift that date.
Key Takeaways
- RMDs usually begin at age 73 under current law.
- Inherited accounts have different start dates.
- Delaying RMDs can boost tax?deferral, but not forever.
- Failure to withdraw on time incurs a 25% penalty.
- Strategic timing can lower your overall tax bill.
Understanding the Basics
Required Minimum Distributions are the minimum amounts the IRS mandates you withdraw from most retirement accounts—such as traditional IRAs, 401(k)s, and other tax?deferred plans—once you reach the required age. The purpose is to ensure that tax?deferred savings eventually get taxed. As of the 2023 Secure Act?2, the starting age moved from 72 to 73, and it will rise to 75 in 2033. The calculation uses your account balance at year?end and a life?expectancy factor from IRS tables. If you have multiple accounts, you must calculate each separately, but you can aggregate withdrawals from the same account type.
Important Details to Know
While age 73 is the default trigger, several scenarios alter the timeline. If you inherit a traditional IRA from a non?spouse, you generally must start RMDs by December?31 of the year after the original owner’s death, unless you qualify for the 10?year rule. Roth IRAs are exempt from RMDs during the original owner’s lifetime, though beneficiaries may have to take them. The first RMD must be taken by April?1 of the year following the year you turn 73; however, taking it early means you’ll need a second distribution by December?31 of that same year, effectively doubling your withdrawals for that calendar year. For high?income retirees, coordinating RMDs with other taxable income can help avoid pushing you into a higher tax bracket. Finally, if you’re still working past the RMD age and you don’t own more than 5% of your employer, you can delay RMDs from that employer’s 401(k) until the year you retire.
Practical Steps to Take
- Verify your account types and ownership status to know which assets are subject to RMD rules.
- Calculate your first-year RMD using the IRS Uniform Lifetime Table or the appropriate beneficiary table.
- Decide whether to take the first RMD by April?1 of the following year or wait until December?31 to spread out tax impact.
- Set up automatic withdrawals or reminders for each subsequent year to avoid the 25% penalty.
Common Mistakes to Avoid
- Assuming Roth IRAs never require RMDs for beneficiaries.
- Missing the April?1 deadline and facing a hefty penalty.
- Taking the entire first-year RMD in April, which can push you into a higher tax bracket.
Frequently Asked Questions
Q1: Can I delay my first RMD past age 73?
No. The first RMD must be taken by April?1 of the year after you turn 73. You can postpone it to that date, but you cannot skip it entirely.
Q2: What happens if I miss an RMD?
Missing an RMD triggers a 25% excise tax on the amount that should have been withdrawn. You can request a waiver if the error was due to reasonable cause, but the penalty is steep.
Q3: Do I need to take RMDs from a 401(k) if I’m still employed?
If you’re still working for the plan sponsor and own less than 5% of the company, you can delay RMDs from that 401(k) until the year you separate from service, even after turning 73.
Q4: How do inherited IRAs affect my RMD schedule?
Non?spouse beneficiaries usually must start RMDs by December?31 of the year after the original owner’s death, unless the 10?year rule applies. Spousal beneficiaries can treat the account as their own, delaying RMDs until they reach the required age.
Timing your RMDs correctly protects your retirement nest egg from unnecessary taxes and penalties. Review your account types, calculate your first distribution carefully, and set up reliable reminders—these simple steps keep you on track and maximize the longevity of your savings.
Editorial Disclosure: This article is for informational purposes only and does not constitute financial advice.