Retirees with traditional IRAs or workplace retirement plans face a hard deadline that carries real financial consequences. Anyone who reached age 73 after December 31, 2022, must withdraw a required minimum distribution by December 31 each year or pay a 25% excise tax on the shortfall. The penalty, cut from 50% under prior law by SECURE 2.0, still amounts to thousands of dollars on a six-figure account balance, and the first-year deferral option creates a lesser-known trap: two taxable distributions compressed into a single calendar year.
Why the December 31 RMD Deadline Hits Harder in 2026
The age-73 starting point, set by SECURE 2.0 as Division T of the Consolidated Appropriations Act, 2023, shifted the required beginning date for millions of account holders who turned 72 after 2022. That shift did not eliminate the annual withdrawal obligation. It simply delayed when the clock starts ticking. Once it starts, the IRS expects a distribution by December 31 of every subsequent year.
A first-year loophole makes the math worse for anyone who procrastinates. Account owners who turn 73 can push their initial RMD to April 1 of the following year. But a second RMD for that following year remains due by December 31 of that same year. The result is two taxable withdrawals landing in one tax return, potentially pushing a retiree into a higher bracket and increasing Medicare premium surcharges tied to modified adjusted gross income. As the IRS explains in its guidance on required minimum distributions, each year’s withdrawal has its own deadline and cannot be rolled forward.
Taxpayers who turned 73 in 2024 and chose the April 1, 2025, deferral would have owed both their first and second RMDs in 2025. Each cohort that reaches the new threshold faces the same compressed-distribution risk, and the volume of double-RMD filers likely exceeds what the simple age-cohort change would suggest, because the deferral option itself encourages bunching. For retirees with sizable pre-tax balances, the one-time deferral can create a spike in income that reverberates through tax brackets, Social Security taxation, and income-based surcharges two years later.
Excise Tax Mechanics Under 26 U.S.C. Section 4974
Missing the deadline triggers a tax equal to 25% of the difference between what was required and what was actually withdrawn. Under 26 U.S.C. Section 4974, the prior penalty stood at 50%, so SECURE 2.0 cut it in half. The reduction, however, does not make the penalty trivial. On a $200,000 IRA with a roughly $7,500 RMD, a full miss would cost about $1,875 in excise tax alone, on top of the ordinary income tax owed once the distribution is eventually taken.
A correction window exists. Regulations under 26 CFR Section 54.4974-1 allow the 25% rate to drop to 10% if the shortfall is fixed within two years. Taxpayers who discover a missed or short distribution must report the additional tax on Form 5329, filed with the federal income tax return for the year the RMD was required. The IRS details how to complete this form and request the reduced penalty in its RMD frequently asked questions, including instructions for making up missed withdrawals and documenting reasonable error.
While the code section sets the default penalty, the agency has long had discretion to waive or reduce it when the taxpayer acts promptly and in good faith. That relief is not automatic. Retirees must correct the shortfall, file the form, and attach an explanation. Failing to file leaves the penalty technically outstanding, even if the full distribution is eventually taken in a later year.
How the IRS Calculates RMDs
The size of each year’s required withdrawal depends on both the prior year-end account balance and a life expectancy factor. For most IRA owners, the IRS uses the Uniform Lifetime Table, which assumes a hypothetical beneficiary and stretches withdrawals over a long horizon. The account balance as of December 31 of the previous year is divided by the applicable factor to arrive at the current year’s RMD.
Different tables apply in special situations, such as when a much younger spouse is the sole beneficiary. The agency’s detailed rules, examples, and worksheets appear in Publication 590-B, which also addresses inherited accounts and post-death payout options. Because the factor changes each year as the account owner ages, the RMD amount does not remain static, and market performance can magnify swings from one year to the next.
For retirees trying to avoid the double-RMD trap, the calculation mechanics matter less than the calendar. Once the first distribution year arrives, taking the initial RMD in that year-rather than waiting until the following April-spreads income across two tax years and reduces the odds of bracket creep. Those who have already delayed may still be able to blunt the impact by coordinating charitable distributions, timing other income, or adjusting estimated tax payments.
Planning Around 2026 and Beyond
The December 31 deadline will loom larger as more retirees age into the SECURE 2.0 regime. Each year, a fresh cohort turns 73 and confronts the choice between taking the first RMD in the year they reach that age or deferring to the following April. The law’s flexibility can be useful in a year with unusually high income, but the trade-off is clear: a one-time reprieve at the cost of doubled withdrawals later.
For account owners, the practical takeaway is to treat the required beginning date as the start of a recurring schedule, not a one-off decision. Marking the calendar for both the first and second RMD years, confirming calculations with plan custodians, and understanding the consequences of a miss can help retirees avoid unnecessary penalties and manage their taxable income more predictably as they move through their seventies.
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.
