Traditional retirement accounts allow decades of tax-deferred growth, but that deferral was never meant to last forever. Federal law eventually forces money out of tax-favored accounts and onto the tax rolls, and the clock now starts in the year an account holder turns 73. A retiree who lets one of these withdrawals slip past the deadline faces one of the harshest penalties written into the retirement code.
Why the required-withdrawal clock starts at 73
The rule applies to traditional IRAs and most workplace plans, including 401(k), 403(b), and 457(b) accounts. Once an account holder reaches the trigger age, the government requires a minimum amount to come out each year, calculated from the year-end balance and a life-expectancy factor published in federal tables. Roth IRAs are exempt during the original owner’s lifetime, which is one reason they hold a distinct place in retirement planning.
The trigger age has moved twice in recent years. The SECURE 2.0 Act lifted it from 72 to 73 for people reaching that age after 2022, and the same law schedules another increase to 75 for those who turn 74 after 2032, according to the Internal Revenue Service. Someone born in 1955, for example, falls under the age-73 rule, while a younger saver born in 1961 will not face a first distribution until 75.
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The 25 percent penalty and the discount for fixing it
The cost of missing a required distribution is severe. When an account holder fails to take the full amount by the deadline, the shortfall is subject to an excise tax equal to 25 percent of the money that should have come out. On a $20,000 required distribution left untouched, that penalty reaches $5,000, and it sits on top of the ordinary income tax owed once the money is finally withdrawn.
The tax code does leave room to soften the blow. The 25 percent charge drops to 10 percent when the missed amount is distributed and the error is corrected within a two-year correction window, and the reduced rate is claimed on the same form used to report the penalty. The reporting mechanics run through Form 5329, which also lets a taxpayer request a full waiver of the tax by showing the shortfall was due to reasonable error and that steps are being taken to remedy it.
First-year timing and the April deadline trap
The first required distribution carries a wrinkle that catches many new retirees. For the initial year, the deadline is not December 31 but April 1 of the following year, a one-time grace period. Delaying that far, however, pushes two taxable distributions into the same calendar year, because the second year’s withdrawal is still due by its own December 31 deadline. Two distributions stacked into one year can inflate taxable income enough to raise Medicare premiums or push part of a Social Security benefit into a higher bracket.
Every year after the first follows the ordinary December 31 deadline. Account holders with more than one IRA may total the required amounts and take the full sum from a single account, but workplace plans generally must be calculated and satisfied separately. The federal rules governing these choices are laid out on the agency’s required minimum distributions resource, which spells out the accounts covered and the calculation method.
Steps that keep a retiree clear of the penalty
Custodians typically calculate the required figure and notify account holders, but the legal responsibility to withdraw the money rests with the individual, not the financial institution. Many retirees set up automatic year-end distributions with their custodian so the amount is never left to memory. Others coordinate the withdrawal with tax planning, using a charitable transfer or a partial Roth conversion strategy in earlier years to shrink the balance that will eventually be subject to mandatory withdrawals.
Anyone who discovers a missed distribution is generally better off correcting it quickly and filing the appropriate form than waiting for the agency to flag it, since the reduced 10 percent rate and the waiver process both reward prompt action. The federal guidance treats a good-faith fix as a mitigating factor, and the difference between a 25 percent charge and a waived penalty can run into thousands of dollars on a single year’s distribution.
Two rules that sit alongside the basic requirement
One of the more useful tools for softening a required distribution is the qualified charitable distribution. An account holder who is at least 70½ can direct money straight from an IRA to an eligible charity, and the amount is excluded from taxable income rather than deducted, which can matter for a retiree who does not itemize. Just as important, a qualified charitable distribution can count toward the required minimum for the year.
The technique carries its own ceiling. The Internal Revenue Service caps the annual exclusion at $108,000 for 2025 in its guidance on IRA distributions, a figure now indexed to inflation, and a married couple filing jointly can each use a separate limit from their own accounts. The transfer must move directly from the custodian to the charity to qualify, so a withdrawal the account holder takes personally and later donates does not receive the same treatment. For a retiree who gives regularly and faces a mandatory withdrawal, routing the gift through the account can satisfy the requirement and trim the tax bill at once.
Heirs who inherit these accounts face a different clock. Under current law, most non-spouse beneficiaries must empty an inherited IRA within 10 years of the original owner’s death, and some must also take annual distributions along the way. Those beneficiary rules run alongside the owner’s own lifetime requirements rather than replacing them, and a missed withdrawal on an inherited account can trigger the same excise tax.
This article was produced with the assistance of artificial intelligence and reviewed by The Financial Wire editorial team.
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Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
