Tax-deferred retirement savings mechanisms such as traditional Individual Retirement Accounts (IRAs) and 401(k) plans offer a tax advantage wherein contributions can be made using pre-tax income. This results in deferred taxation; taxes are owed only when funds are eventually withdrawn, which includes both the original contributions and any subsequent investment earnings.
However, the tax deferral feature within these accounts is not indefinite. At certain ages established by legislation, individuals must commence withdrawing a minimum mandated amount each year from these accounts, referred to as Required Minimum Distributions (RMDs). These mandatory withdrawals ensure that deferred tax is collected over time, with the minimum amounts calculated based on the previous year's ending account balances.
Which Retirement Accounts Necessitate Required Minimum Distributions?
An RMD represents the lowest amount that must be withdrawn from particular retirement savings vehicles annually. These regulations apply primarily to the original owners of the accounts, as well as beneficiaries in certain conditions. The account types requiring annual RMDs include:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- Traditional 401(k) plans
- Traditional 403(b) plans
- 457(b) plans
Notably, Roth retirement accounts differ in that the original account holders are exempt from RMDs during their lifetime. However, beneficiaries inheriting Roth accounts must adhere to the RMD rules. Standard RMD withdrawals must generally be completed by December 31 each year, with a singular exception for the initial distribution that can be delayed until April 1 of the year following the account holder reaching the applicable age.
When Must Required Minimum Distributions Commence?
The age requirement to start taking RMDs has shifted in recent years through enactments such as the SECURE Acts of 2019 and 2022. As of this year, individuals owning tax-deferred retirement accounts are obligated to initiate RMDs upon turning age 73 or older. The precise age thresholds are as follows, categorized by birth dates:
| Account Holder's Birth Date | Age RMDs Begin |
|---|---|
| Before July 1, 1949 | 70 1/2 |
| July 1, 1949 – December 31, 1950 | 72 |
| January 1, 1951 – December 31, 1959 | 73 |
| After December 31, 1959 | 75 |
Failure to execute the required withdrawals by the applicable deadlines incurs penalties. If an individual does not withdraw the full RMD amount on time, the IRS imposes an excise tax equaling 25% of the undistributed amount in addition to the requirement to complete the RMD. This punitive tax can potentially be reduced to 10% if rectified within a two-year period.
Alternatively, the IRS may waive the penalty altogether if the shortfall is the result of a reasonable error corrected promptly. To qualify for such relief, an explanatory statement must be submitted stating the reason for the missed RMD. This statement is included with Form 5329 and must be filed alongside the individual's tax return.
Calculating the Required Minimum Distribution for a $250,000 Account
The calculation of RMDs involves dividing the account balance as of December 31 of the prior year by a life expectancy factor prescribed by the IRS. For withdrawals due in a given year, the distribution amount is based on the preceding calendar year's ending balance.
Account holders possessing multiple individual IRAs are required to compute the RMD for each distinct account but may withdraw the total combined amount from one IRA if desired. In contrast, participants with 401(k), 403(b), or profit-sharing plans must determine and withdraw the RMD amounts separately for each account.
The IRS provides three life expectancy tables to determine the correct divisor based on each individual’s situation:
- Single Life Expectancy Table (Table I): Utilized exclusively by beneficiaries.
- Joint and Last Survivor Life Expectancy Table (Table II): Applied by account holders whose sole beneficiary is a spouse more than 10 years younger.
- Uniform Lifetime Table (Table III): Employed by account holders with either a spouse beneficiary not more than 10 years younger or with multiple beneficiaries.
Uniform Lifetime Table Examples
| Age | Distribution Period |
|---|---|
| 73 | 26.5 |
| 74 | 25.5 |
| 75 | 24.6 |
| 76 | 23.7 |
| 77 | 22.9 |
| 78 | 22.0 |
| 79 | 21.1 |
| 80 | 20.2 |
Illustrative Scenarios
Scenario 1: Kyle, who turns 73 in 2026, owns a traditional IRA with a balance of $250,000 as of December 31, 2025. Using the Uniform Lifetime Table, his distribution period at age 73 is 26.5. Therefore, his RMD amount for 2026 is calculated as $250,000 divided by 26.5, totaling $9,434. Since this represents his first RMD, he may delay the withdrawal until April 1, 2027. Nonetheless, all subsequent RMDs must be fully distributed by December 31 of each year.
Scenario 2: Celina turns 74 in 2026 and has two traditional IRAs. The first account held $250,000 and the second $500,000 at the end of 2025. The distribution period at age 74 is 25.5. Celina’s RMDs are $9,804 from the first IRA ($250,000 ÷ 25.5) and $19,608 from the second IRA ($500,000 ÷ 25.5). She may withdraw the combined amount of $29,412 from just one IRA or split the required withdrawal between both accounts.
Scenario 3: Lara, turning 77 in 2026, has both a traditional IRA and a traditional 401(k), each valued at $250,000 as of December 31, 2025. At age 77, the distribution period is 22.9. Her RMD from each account is $10,918 ($250,000 ÷ 22.9). Importantly, because these accounts fall under different plan types, the RMDs must be taken separately from each account; combining the withdrawals is not permissible.
Understanding these rules is critical to maintaining compliance and avoiding penalties. Given the variability in accounts and individual circumstances, retirees should carefully calculate their RMDs based on their specific account balances and age, using the appropriate life expectancy tables.