A retiree who turned 73 last year and holds $500,000 in a traditional IRA owes the IRS a required minimum distribution of roughly $18,868, calculated using the Uniform Lifetime Table published in IRS Publication 590-B. If that money does not leave the account by December 31, the IRS will impose a 25 percent excise tax on the shortfall. That is $4,717 gone, enough to erase years of tax-deferred growth in a single missed deadline.
The stakes are not hypothetical. As of June 2026, tens of millions of Americans hold traditional IRAs and employer-sponsored retirement plans with balances that tend to peak right around the age when mandatory withdrawals kick in. Many of them are navigating these rules for the first time, and the margin for error is slim.
Who must take RMDs and when the clock starts
The requirement applies to anyone who has reached age 73 and still holds assets in a traditional IRA, a traditional 401(k), a 403(b), or most other tax-deferred employer plans. The age threshold was raised from 72 to 73 by the SECURE 2.0 Act, enacted as Division T of the Consolidated Appropriations Act of 2023 (Public Law 117-328). That change covers people born between 1951 and 1959. A further increase to age 75 is scheduled for individuals born in 1960 or later, set to take effect in 2033. For someone who is 65 or 66 today, that means an extra two years of tax-deferred growth compared to current retirees, a detail worth building into any long-range retirement plan.
The first RMD is due by April 1 of the year after a person reaches the applicable starting age, according to IRS guidance. That April 1 grace period is the only scheduling flexibility the tax code offers, and it comes with a trap: anyone who delays the first withdrawal into the following year must still take the second RMD by December 31 of that same year. Two taxable distributions landing in a single tax year can push a retiree into a higher bracket, trigger the 3.8 percent net investment income tax, and increase Medicare Part B and Part D premiums through the income-related monthly adjustment amount, known as IRMAA.
After the first distribution, every subsequent RMD must be completed by December 31. There is no extension, no automatic rollover, and no reminder letter from the IRS. The burden falls entirely on the account holder.
Calculating the amount
Each year’s RMD equals the account balance as of December 31 of the prior year divided by a life expectancy factor from the IRS tables in Publication 590-B. For a 73-year-old using the Uniform Lifetime Table, the divisor is 26.5. On a $500,000 balance, that produces a required withdrawal of $18,868. At age 80, the divisor drops to 20.2, pushing the required withdrawal on the same balance above $24,750.
Retirees who hold multiple traditional IRAs may calculate the RMD for each account separately but withdraw the total from any one or combination of their IRAs. That aggregation rule does not extend across plan types: a 401(k) RMD must be taken from that specific 401(k), and a 403(b) RMD must come from 403(b) accounts. Mixing up those rules is one of the most common compliance mistakes. The IRS treats an under-withdrawal from one plan type as a shortfall even if the retiree over-withdrew from another.
One wrinkle that catches people off guard: if a spouse who is more than 10 years younger is the sole beneficiary of the account, the account holder uses the Joint and Last Survivor Table instead, which produces a larger divisor and a smaller required withdrawal.
The penalty and how to reduce it
The excise tax on any shortfall between the required amount and the amount actually withdrawn is 25 percent, reported on Form 5329 and filed with the taxpayer’s individual income tax return for the year the shortfall occurred.
SECURE 2.0 added a meaningful escape valve. If the missed or insufficient distribution is corrected within a “correction window” that generally runs through the end of the second tax year after the penalty is imposed, the excise tax drops to 10 percent under IRC Section 4974(d), as detailed in Internal Revenue Bulletin 2024-19. On that same $18,868 shortfall, the difference between the 25 percent penalty ($4,717) and the corrected 10 percent penalty ($1,887) is $2,830. That is a strong incentive to act quickly after a mistake rather than hoping the IRS does not notice.
Taxpayers may also request a full waiver of the penalty by attaching a letter of explanation to Form 5329 showing the shortfall resulted from reasonable error and that corrective steps have been taken. The IRS has discretion to grant the waiver, and tax practitioners widely report that the agency is often lenient when the shortfall is promptly corrected and clearly unintentional. Still, no public enforcement data confirms how frequently waivers are approved.
Exceptions worth knowing
Not every retiree with a tax-deferred account faces the December 31 deadline. Several carve-outs apply:
- Still-working exception. Participants in an employer-sponsored plan (401(k), 403(b), or governmental 457(b)) who are still employed by the plan sponsor and do not own more than 5 percent of the business may delay RMDs from that plan until April 1 of the year after they actually retire. This exception does not apply to IRAs.
- Roth IRAs. Original owners of Roth IRAs are not subject to lifetime RMDs. The money can stay in the account indefinitely, which is one reason financial planners often recommend Roth conversions in the years before RMDs begin.
- Designated Roth 401(k) accounts. Starting with the 2024 tax year, designated Roth accounts inside employer plans are also exempt from lifetime RMDs, a change made by SECURE 2.0 Section 325. Before that provision took effect, Roth 401(k) balances were subject to the same distribution schedule as pre-tax 401(k) balances.
- Qualified charitable distributions. Account holders age 70½ or older can direct up to $105,000 per year (the 2024 inflation-adjusted limit; the IRS adjusts this figure annually) from a traditional IRA directly to a qualifying charity. A QCD counts toward satisfying the year’s RMD and is excluded from taxable income, making it one of the most tax-efficient ways to meet the requirement for retirees who already give to charity.
How RMDs ripple into other costs
The dollar amount of an RMD matters beyond the income tax it triggers. Because RMDs are included in modified adjusted gross income, a large distribution can push a retiree past thresholds that carry real financial consequences:
- Social Security taxation. Up to 85 percent of Social Security benefits become taxable once combined income (adjusted gross income plus nontaxable interest plus half of Social Security benefits) exceeds $34,000 for single filers or $44,000 for married couples filing jointly. An RMD can easily tip a retiree over that line.
- Medicare IRMAA surcharges. Higher-income retirees pay surcharges on Medicare Part B and Part D premiums. The income brackets are based on the tax return from two years prior, so a large RMD taken in 2026 could increase Medicare costs in 2028.
- Net investment income tax. Single filers with modified AGI above $200,000 and joint filers above $250,000 may owe an additional 3.8 percent tax on investment income, and RMD-driven income can push total AGI past those thresholds.
These knock-on effects are why many tax advisers recommend taking RMDs earlier in the year and, when possible, pairing them with strategies like qualified charitable distributions or Roth conversions in lower-income years before RMDs begin.
What retirees should do now, not in December
For anyone turning 73 in 2026 or already past that age, the planning checklist is straightforward but unforgiving:
- Confirm the deadline. If this is a first RMD, decide whether to use the April 1 deferral or take the distribution by December 31 to avoid doubling up next year. Run the numbers on both scenarios to see which produces the lower total tax bill.
- Pull account balances. Gather December 31, 2025, statements for every traditional IRA, 401(k), 403(b), and similar account. Custodians are required to report this figure, and many also calculate the RMD amount on annual statements.
- Run the math. Divide each account’s prior-year-end balance by the applicable life expectancy factor from the IRS Uniform Lifetime Table (or the Joint and Last Survivor Table if a spouse who is more than 10 years younger is the sole beneficiary).
- Withdraw from the right accounts. Remember the aggregation rules: IRA RMDs can be combined and taken from any IRA, but 401(k) and 403(b) RMDs must come from their respective plans.
- Consider a QCD. If charitable giving is part of the plan, directing some or all of the RMD to a qualified charity can satisfy the requirement while keeping the distribution out of adjusted gross income.
- Do not wait until December. Processing times vary by custodian, and some transactions take several business days to settle. A withdrawal requested in the last week of December that settles in January counts as a missed deadline. Mid-year is the safest window to act.
The December 31 cutoff is absolute. The IRS does not grant extensions for late paperwork, slow custodians, or honest confusion about the rules. Retirees who are unsure whether they have met the requirement should contact their plan administrator or tax adviser now, while there is still time to course-correct, not after the deadline has passed and the penalty clock has started.
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.
