What Is an RMD
Since IRA contributions were tax-deductible, the rules require us to gradually empty the accounts in retirement and pay the taxes. At a certain age, gradual distribution from an IRA is mandatory, which is called a Required Minimum Distribution (RMD). RMDs apply to all types of IRAs (except Roth) and to qualified defined contribution retirement plans, such as 401(k) and 403(b). To avoid generalizations, we will focus on a regular IRA.
Of course, we can use the money earlier, but the gradual liquidation of the accounts must take place at a specified age and at a pace dictated by our remaining life expectancy.
A Later Start for RMDs
The SECURE Act changed the rules for required minimum distributions as of January 1, 2020. In the past, after reaching age 70 and a half, contributions to traditional IRAs were prohibited, and distributions from retirement accounts (IRAs, as well as 401(k), 403(b) and 457 plans) were required, even if the owner did not need the money. As of January 1, 2020, the obligation to take distributions from retirement accounts began only after the 72nd birthday.
The SECURE 2.0 Act, which took effect on December 29, 2022, allows required distributions from retirement accounts to be delayed according to the following schedule: age 73 – for people who turned 72 after December 31, 2022 (born in 1951–1959), and age 75 – for people who turn 74 after December 31, 2032 (born in 1960 or later). This change is beneficial, because it extends the time retirement investments can grow.
Lower Penalties
Account owners who do not take their RMD on time may have to pay a penalty.
Before the SECURE 2.0 Act, the tax penalty was 50 percent of the required amount that was not withdrawn. For example, if you did not withdraw a required distribution of $2,000, you would have had to pay a 50 percent penalty, that is, a $1,000 penalty.
The SECURE 2.0 Act reduced the penalty to 25%, and if the account owner corrects the mistake within two years, the penalty drops to 10%. If you show that the missed RMD was due to an error and that reasonable steps are being taken to fix the problem, the IRS may waive the penalty entirely.
You Can Contribute to an IRA Even While Taking RMDs
Before 2020, contributions to an IRA were prohibited after reaching age 70 and a half. Now we can continue contributing to an IRA regardless of age and whether or not we are subject to RMDs, provided that in a given calendar year we have compensation from our own (or our spouse’s) employment or from self-employment.
The question arises as to what tax benefit such a contribution will give us. A contribution to a traditional IRA may be deductible from income under the usual rules. If you have moderate income, you can also take advantage of the retirement credit called the Saver’s Credit, which is 50, 20 or 10% of the contribution, depending on your earnings. When calculating it, however, eligible contributions are reduced by recent distributions from a retirement plan or account.
Example: Under the RMD rules you withdrew $1,000 from your IRA, but deposited $3,000 in the same year, so you will calculate the Saver’s Credit on $2,000. Note: The Saver’s Credit is non-refundable, which means that if your tax liability is lower than the credit, the rest of the credit will go unused.
When to Start Distributions
A required IRA distribution must be taken by December 31 of the year in which you reach the age set by law (currently 73). If it is your first distribution, you get a three-month extension – until April 1 of the following year. In that case, remember that in the following year you will take two RMDs (one by April 1 and the second by December 31), which will raise your income and your taxes.
Taxpayers who have turned 73 but are still working can postpone liquidating their 401(k) accounts and other similar employer plans until they retire. However, you cannot postpone RMDs from an IRA beyond age 73 (for those born in 1960 or later – age 75), even if you are still working.
How Much Is the Required Distribution
To calculate the required minimum distribution, take into account the balance of all your IRAs at various institutions as of December 31 of the previous year. Then divide this amount by the factor corresponding to the owner’s age, taken from a life expectancy table. The IRS publishes these tables in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), www.irs.gov/pub/irs-pdf/p590b.pdf
Example: This year you turn 73, and on December 31 of the previous year you had $50,000 in all your IRAs. According to the IRS table (Uniform Lifetime Table), the factor for age 73 is 26.5. So this year you must withdraw $1,886.79 from your IRA (50,000 / 26.5). If the sole beneficiary of the account were your wife, more than 10 years younger than you, a different table would be used, and the expected distribution period would be longer – depending on your and your wife’s ages.
Note: A larger distribution in one year does not exempt you from having to withdraw at least the minimum amount the following year. Calculators help in figuring out the required distributions. Search online for “RMD calculator.”
Do You Have to Remember the Distributions Yourself
The answer is: no. It is the financial institution where we hold the IRA that is obligated to inform us of the RMD requirement. We don’t have to withdraw the funds in cash; we can transfer them to another, regular bank or brokerage account. The payer will calculate the minimum amount every year and inform us. Precisely because IRAs require a lot of paperwork, financial institutions charge a so-called custodian fee of about $50 a year, or even more.
If the rules above seem complicated, don’t worry. Financial institutions are required to tell you how much and when you must withdraw from your retirement accounts to comply with the rules.
Can You Avoid RMDs
Contrary to popular belief, leaving the US or renouncing American citizenship does not exempt you from required distributions!
The only way to avoid required distributions is to convert a traditional IRA to a Roth IRA in advance (Roth IRA conversion), to which RMDs do not apply. However, you will then have to pay income taxes on the entire amount converted, after the year of the conversion. Converting part of an IRA may make sense in a year when your income suddenly dropped. Talk to your tax advisor about it.
More can be found on the IRS website: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
Updated October 2026.
