Retirement accounts built over decades do not stay tax-deferred forever. Once an account holder reaches age 73, the IRS requires annual withdrawals from most traditional retirement accounts, whether or not the money is actually needed that year. Skip one, and the penalty is steep: a 25% excise tax on the amount that should have come out, one of the harsher automatic penalties anywhere in the tax code.
Why age 73 is now the trigger, not 70½ or 72
The required minimum distribution (RMD) starting age has moved twice in recent years, most recently to 73 under the SECURE 2.0 Act, and the IRS’s official RMD FAQ page confirms that account owners “generally must withdraw annually starting with the year they reach age 73.” The rule applies to traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored plans such as 401(k)s and 403(b)s. Workers still employed at a company sponsoring their retirement plan can generally delay RMDs from that specific plan until the year they actually retire — unless they own more than 5% of the business — but that delay does not extend to IRAs, which require withdrawals starting at 73 regardless of employment status.
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The one-time deadline extension that trips people up
The first RMD carries a special grace period that does not apply to any RMD after it. An account holder who turns 73 has until April 1 of the following year to take that first withdrawal, rather than by December 31 of the year they turn 73. The catch is that delaying the first RMD into the new year means two distributions land in the same tax year — the delayed first one and the regular second one, both taxable as ordinary income — which can push a retiree into a higher bracket or trigger a bigger Medicare IRMAA surcharge two years later. Every RMD after the first one is due by December 31 of that calendar year, with no additional grace period. Because both withdrawals are fully taxable, most tax preparers recommend running the numbers on both options — taking the first RMD in the year someone turns 73 versus deferring it to the following April — before defaulting to the later date simply because the rule allows it.
How the withdrawal amount is actually calculated
The RMD amount is not a fixed percentage. It is calculated by dividing the account’s balance as of December 31 of the prior year by a life-expectancy factor published in IRS tables, with the specific table depending on the account holder’s situation. Most people use the Uniform Lifetime Table, while an account holder whose sole beneficiary is a spouse more than 10 years younger uses the Joint and Last Survivor Table, which produces a smaller required withdrawal. The IRS requires the calculation to be done separately for each IRA a person owns, though the total RMD across all IRAs can be withdrawn from just one of them; RMDs from 401(k) and other employer plans, by contrast, must generally come out of each plan account individually.
The 25% penalty — and how to cut it to 10%
Missing an RMD, or withdrawing less than required, triggers what the tax code calls an excise tax on the shortfall. That penalty was cut from 50% to 25% under SECURE 2.0, and it can drop further, to 10%, if the account holder corrects the missed distribution within a two-year window and files the appropriate paperwork, according to the same IRS RMD FAQ. Correcting the mistake requires filing Form 5329 for the tax year the RMD was due, along with the missed withdrawal itself. The IRS can also waive the penalty entirely if the account holder shows the shortfall resulted from reasonable error and that steps are being taken to fix it — but that waiver requires proactively filing Form 5329 with a letter of explanation, not simply waiting to be caught.
Roth accounts and inherited accounts play by different rules
Not every retirement account carries an RMD obligation. Roth IRAs have no RMD requirement during the original owner’s lifetime, and designated Roth accounts inside a 401(k) or 403(b) were freed from lifetime RMDs starting in 2024 under SECURE 2.0 as well. Beneficiaries are a different story: most people who inherit an IRA or workplace account after 2019 must empty it within 10 years under the SECURE Act’s rules, with limited exceptions for spouses, minor children, and a few other qualifying beneficiaries. The 25% excise tax for a missed distribution applies to inherited accounts under RMD obligations just as it does to an original owner’s account, so the deadline discipline that matters at 73 matters again for whoever eventually inherits the money.
A charitable option that satisfies the requirement without the tax bill
Account holders 70½ or older have one tool available to reduce the taxable hit from an RMD: a qualified charitable distribution, which sends money directly from an IRA to an eligible charity and excludes the transferred amount from taxable income entirely, up to an inflation-adjusted annual cap set by the IRS. A qualified charitable distribution can also count toward that year’s RMD, meaning a retiree who does not need the withdrawn cash can satisfy the age-73 requirement, avoid the 25% shortfall penalty, and keep the distribution off their tax return in the same move — provided the transfer goes straight from the custodian to the charity rather than passing through the account holder’s own hands first.
This article was researched and drafted with the assistance of AI and reviewed by The Financial Wire editorial team.
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David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
