While the rules surrounding retirement accounts have changed over the past several years, the basic requirement remains the same: once you reach the applicable RMD age, the IRS requires you to begin withdrawing a minimum amount each year from certain retirement accounts.

Why It Matters

RMD rules can create unexpected tax consequences for retirees who are not planning ahead. Timing distributions properly may help reduce tax exposure, avoid unnecessary penalties, and better coordinate retirement income with Medicare and Social Security considerations. Understanding your RMD obligations before year-end can help you make more informed financial decisions and avoid costly surprises.

What is an RMD?

A Required Minimum Distribution (RMD) is the minimum amount the IRS requires you to withdraw annually from certain tax-deferred retirement accounts.

Accounts generally subject to RMD rules include:

• Traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• Employer-sponsored retirement plans such as 401(k)s and 403(b)s

Roth IRAs, and beginning in 2024, Roth 401(k) and Roth 403(b) accounts, generally do not require lifetime RMDs for the original account owner.

When do RMDs begin?

Under current law, individuals who turn 73 in 2026 are generally required to begin taking RMDs.

Your first RMD must generally be taken by April 1 of the year following the year you turn 73. However, every RMD after the first must be taken by December 31 each year.

For example:

• If you turn 73 during 2026, your first RMD can be taken anytime during 2026 or delayed until April 1, 2027.
• If you delay the first RMD until 2027, you will also need to take your second 2027 RMD by December 31, 2027, resulting in two taxable distributions in the same year.

Because of this, delaying the first RMD may increase taxable income and should be evaluated carefully.

If you are still working and participate in an employer-sponsored plan, you may be able to delay RMDs from that plan, depending on ownership and plan rules.

What happens if an RMD is missed?

The IRS may assess a penalty if the full RMD is not withdrawn on time.

Currently, the penalty is generally:

• 25% of the amount not withdrawn, or
• potentially reduced to 10% if corrected timely and certain IRS requirements are met.

Planning Considerations

RMDs can impact:

• Federal and state taxable income
• Medicare premium surcharges (IRMAA)
• Taxation of Social Security benefits
• Estimated tax payment requirements

Proper planning may help reduce unexpected tax consequences and avoid penalties.