Can I Take My First RMD Before My 72nd Birthday?

Required Minimum Distributions (RMDs) are IRS rules dictating when and how much money individuals must withdraw from tax-deferred retirement accounts. These regulations ensure taxes are eventually paid on savings that have grown tax-free. Their primary purpose is to prevent retirement accounts from being used for indefinite tax deferral or wealth transfer without taxation.

Understanding Required Minimum Distributions

Required Minimum Distributions are mandatory annual withdrawals from most tax-deferred retirement accounts. These include Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and 457(b) plans.

The age at which RMDs begin has changed due to recent legislation. The SECURE Act of 2019 increased the RMD age from 70½ to 72. The SECURE 2.0 Act of 2022 further raised this age to 73 starting in 2023. For individuals born in 1960 or later, the RMD age will increase to 75 beginning in 2033. The specific age depends on the individual’s birth year.

The First RMD and Your Required Beginning Date

The Required Beginning Date (RBD) determines when your first RMD must be taken. Your RBD is generally April 1 of the calendar year following the year you reach your RMD age. For example, if you turned 73 in 2024, your first RMD is for the 2024 calendar year, but you have until April 1, 2025, to take that distribution.

While you can delay your first RMD until April 1 of the following year, this means you would have to take two RMDs in that subsequent year: your first RMD by April 1, and your second RMD (for the current year) by December 31. Taking two distributions in the same tax year could increase your taxable income, potentially pushing you into a higher tax bracket.

Distinguish between taking a general distribution from your retirement account at any age and taking a Required Minimum Distribution. You can withdraw money from your retirement account before reaching your RMD age, though distributions from tax-deferred accounts before age 59½ may be subject to a 10% early withdrawal penalty in addition to ordinary income tax. These earlier withdrawals are distributions, not RMDs. Your “first RMD” can only occur in or after the calendar year you reach your specified RMD age.

Specific Situations Affecting RMDs

Certain situations can modify or exempt individuals from standard RMD rules. One scenario is the “still working” exception for employer-sponsored plans like 401(k)s and 403(b)s. If you are still employed by the company sponsoring the plan, you may delay RMDs from that specific plan until you retire, even if you are past the RMD age. This exception generally applies unless you are a 5% owner of the business sponsoring the plan, in which case RMDs cannot be delayed. This exception only applies to your current employer’s plan; RMDs from IRAs or accounts with former employers are still required.

Roth IRAs are exempt from RMDs for the original owner during their lifetime. This is because contributions are made with after-tax dollars, meaning the IRS has already collected taxes. However, beneficiaries of Roth IRAs are subject to RMD rules. Beginning in 2024, the SECURE 2.0 Act also eliminated pre-death RMDs for Roth 401(k) accounts.

RMD rules for inherited IRAs differ based on the beneficiary’s relationship to the deceased account holder and the date of death. For most non-spouse beneficiaries inheriting an IRA after 2019, the “10-year rule” generally applies. This means the entire account balance must be distributed by the end of the 10th calendar year following the original owner’s death. If the original owner died after their RBD, annual RMDs may be required during years 1-9 of the 10-year period, with the remaining balance distributed by the 10th year. Spouses, minor children, disabled or chronically ill individuals, or those not more than 10 years younger than the account owner may qualify as “eligible designated beneficiaries” and have more flexible distribution options, such as stretching RMDs over their own life expectancy.

Determining Your RMD Amount and Tax Implications

The amount of your RMD is calculated annually based on your account balance and a life expectancy factor. It is determined by dividing the account balance as of December 31 of the previous year by a life expectancy factor provided in IRS tables. The most commonly used table is the Uniform Lifetime Table, though other tables like the Joint Life and Last Survivor Expectancy Table may apply in specific situations, such as when your spouse is your sole beneficiary and more than 10 years younger. IRA custodians and plan administrators may calculate the RMD for account owners, but responsibility for taking the correct amount lies with the account owner.

Failing to take a timely RMD or withdrawing an insufficient amount can result in penalties. The IRS imposes an excise tax of 25% on the amount not withdrawn as required. This penalty can be reduced to 10% if the shortfall is corrected within two years. In certain cases, the penalty may be waived if the account owner can demonstrate the shortfall was due to reasonable error and that steps are being taken to remedy it, often requiring the filing of Form 5329.

RMDs are taxed as ordinary income in the year they are received. They are reported on Form 1099-R from your financial institution. The RMD amount is added to your other income for the year, which could push you into a higher tax bracket, impacting your tax liability.