Tax-deferred retirement accounts come with a deadline that arrives whether or not the money is needed. Once a saver reaches age 73, federal law requires a minimum amount to be withdrawn from most traditional retirement accounts every year, and the penalty for missing it is one of the harshest in the tax code. An overlooked withdrawal can cost as much as a quarter of the amount that should have been taken.
Why age 73 now sets the clock
The starting age for required minimum distributions, or RMDs, is not the 70½ figure many longtime savers remember. The SECURE 2.0 Act of 2022 pushed the trigger age to 73 for people born between 1951 and 1959, and it is scheduled to rise again to 75 for those born in 1960 or later. According to the IRS required minimum distribution FAQs, the first withdrawal can be delayed until April 1 of the year after the account holder turns 73, but every distribution after that must be completed by December 31.
That first-year grace period hides a trap. Delaying the initial RMD to April 1 forces two taxable distributions into the same calendar year, which can inflate income enough to raise Medicare premiums or push more Social Security into the taxable column. Many retirees take the first distribution in the year they turn 73 to keep the two amounts separate.
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The 25 percent bite, and the discount for acting fast
A missed or short distribution triggers an excise tax on the shortfall. For years, that penalty stood at a punishing 50 percent. SECURE 2.0 cut it to 25 percent, and it drops further to 10 percent when the account owner withdraws the missed amount and files a correction within a two-year window. The reduced rate is spelled out in the instructions for IRS Form 5329, the form used to report the shortfall and calculate what is owed.
The penalty is not always final. The IRS can waive the excise tax entirely when the miss resulted from a reasonable error and the account holder is taking steps to fix it. Correcting the shortfall, filing Form 5329, and attaching a brief statement explaining the cause is the standard path to requesting relief.
Which accounts fall under the rule
Required distributions apply to traditional IRAs, SEP and SIMPLE IRAs, and most workplace plans including 401(k), 403(b), and 457(b) accounts. Roth IRAs are the notable exception: they carry no required distributions during the original owner’s lifetime, one reason some savers convert traditional balances to Roth accounts before the deadlines begin. A still-working exception can also delay distributions from a current employer’s plan for someone who is not a 5 percent owner of the company, though it does not extend to IRAs.
Inherited accounts follow a separate and stricter set of timelines, and the rules there changed substantially after the original SECURE Act. Beneficiaries who assume the older stretch rules still apply often find themselves facing their own shortfalls.
How the yearly figure is calculated
The amount is not a flat percentage. Each year’s distribution equals the account balance as of December 31 of the prior year divided by a life expectancy factor from the IRS Uniform Lifetime Table. As the IRS retirement topics page on RMDs explains, the divisor shrinks with age, so the required share of the account rises steadily over time.
The arithmetic carries a wrinkle worth knowing. An owner of several traditional IRAs can total the required amounts and pull the full sum from a single IRA. Workplace plans are treated separately: each 401(k) or 403(b) generally requires its own distribution, calculated and taken from that specific plan rather than pooled. Confirming which accounts can be combined, and which cannot, is the difference between a clean year and a 25 percent surprise on the next tax return.
Where the misses usually happen
The penalty rarely stems from defiance. It comes from oversight, and a handful of situations account for most shortfalls. A forgotten 401(k) at a former employer sits outside the accounts a retiree watches closely, yet it carries its own required distribution that cannot be covered by pulling extra from an IRA. Inherited accounts add another trap, because a beneficiary who assumes the money can simply sit often discovers a separate, tighter timetable applies to it.
The aggregation rule invites its own errors. Totaling several IRAs and drawing the full amount from one is allowed, but attempting the same across an IRA and a workplace plan is not, and each mismatch leaves a gap the IRS measures at a quarter of the missing dollars. Setting up automatic year-end distributions through the account custodian is the simplest defense, since it removes the human step most likely to be forgotten. For retirees juggling several accounts, a short annual checklist that names every plan and its required figure turns a high-stakes deadline into a routine one.
This article was produced with the assistance of artificial intelligence 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.
