What to Know About the New Age 75 RMD Rule
Your Required Minimum Distribution start date may have changed. Understand the new, age-specific guidelines for mandatory retirement account withdrawals.
A Required Minimum Distribution (RMD) is a mandatory withdrawal individuals must take from their tax-deferred retirement accounts upon reaching a specific age. These distributions are considered taxable income. Recent legislative updates have adjusted the age at which these mandatory withdrawals must commence. The timing of these distributions can influence a retiree’s annual income and overall tax liability, making it important to understand the updated regulations.
Determining Your RMD Starting Age
The SECURE 2.0 Act adjusted the age at which individuals must begin taking RMDs. Your specific starting age now depends on your date of birth, creating a tiered approach to when distributions must begin.
Individuals born in 1950 or earlier should have started RMDs at age 72. Those born between 1951 and 1959 must begin taking RMDs at age 73. For those born in 1960 or later, the RMD age will increase to 75, but this change is not scheduled to take effect until 2033.
The deadline for your first RMD is April 1 of the year following the year you reach your RMD age. For instance, someone turning 73 in 2024 must take their first RMD by April 1, 2025. All subsequent RMDs must be taken by December 31 of each year. Delaying your first distribution until the following year results in two taxable distributions in a single tax year, which could lead to a higher tax bill.
These rules apply to a range of tax-deferred retirement accounts:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k)s
- 403(b)s
- 457(b) plans
An exception is the Roth IRA, which does not require distributions for the original owner. As of 2024, this exemption also applies to Roth accounts in employer-sponsored plans, like Roth 401(k)s.
A provision, often called the “still-working exception,” allows individuals to delay RMDs from their current employer’s 401(k) or similar plan if they are still employed and are not a 5% owner of the business. This exception does not extend to IRAs; RMDs from Traditional IRAs must begin at the required age regardless of employment status.
Calculating the RMD Amount
To calculate your RMD, you divide your retirement account’s balance as of December 31 of the preceding year by a life expectancy factor. This factor is found in the IRS’s Uniform Lifetime Table, the most commonly used table for account holders. Your financial institution or plan administrator provides the required account balance information on a year-end statement.
You must find your life expectancy factor from the IRS Uniform Lifetime Table. For example, a 75-year-old has a distribution period of 24.6 years. If that person had an IRA balance of $400,000 on December 31 of the prior year, their RMD would be $16,260 ($400,000 divided by 24.6).
If you have multiple traditional IRAs, you must calculate the RMD for each one separately. You can then add these amounts together and take the total distribution from one or any combination of your IRAs. The rule for 403(b) plans is similar, allowing you to aggregate the RMDs and withdraw the total from one or more of those accounts.
This aggregation rule does not apply to 401(k) or 457(b) plans. The RMD for each of those accounts must be calculated and withdrawn separately from that specific plan.
Consequences of Missing an RMD
Failing to take a Required Minimum Distribution, or taking less than the required amount, results in a tax penalty. The IRS imposes this penalty to ensure compliance with the distribution rules for tax-deferred accounts.
Under the SECURE 2.0 Act, the penalty for an RMD shortfall was reduced from 50% to 25% of the amount not withdrawn. The penalty is calculated on the difference between what should have been withdrawn and what was actually taken.
The law also introduced a correction window that can further reduce the penalty to 10%. To qualify, an individual must correct the shortfall by withdrawing the required amount in a timely manner. This window extends to the end of the second year after the year the RMD was missed.
If a mistake was due to a reasonable error, you can request a penalty waiver from the IRS by filing Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. You must withdraw the missed RMD and attach a letter explaining the error and the corrective steps taken. The IRS may waive the penalty if it finds the reason valid.