Required Minimum Distributions: 6 FAQs You Need to Know to Avoid Costly Penalties

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Turning 73 soon? Here’s a wish no one makes when blowing out the candles on their cake: paying a 25% penalty on a portion of their hard-earned retirement accounts. We can help you reduce the risk of this happening—no birthday wish required!

So, what are Required Minimum Distributions? When do you have to withdraw them? And what happens if you don’t?

Here are 6 FAQs you need to know to avoid costly penalties:

1. What are Required Minimum Distributions (RMDs)?

RMDs are the minimum amount of money you must withdraw from your retirement accounts each year (though you can withdraw more than the minimum). These withdrawals are mandatory because you can’t keep tax-deferred funds in an account indefinitely.

2. What retirement accounts does this apply to?

  • Traditional IRAs

  • IRA-based plans like SEP IRAs and SIMPLE IRAs

  • 401(k) plans

  • 403(b) plans

  • 457(b) plans

  • Profit-sharing plans

  • Other defined contribution plans

  • Roth IRA beneficiaries – Original owners of Roth IRAs are not required to take RMDs, but beneficiaries must start the year following the original owner’s death.

3. When do you have to start taking RMDs?

Currently, these start when you reach age 73. However, if you were born on or after January 1, 1960, you’ll start taking RMDs at age 75.

Employer-sponsored plans may qualify for exceptions if the participant remains employed by the sponsoring company for the entire year.

4. What is the required withdrawal amount?

Time to grab your calculator! The required withdrawal amount is your total account balance as of December 31 of the previous year divided by your life expectancy factor, which you can find using the IRS table that is applicable to you (Table I, II, or III). Appendix A-1 of IRS Publication 590 contains a worksheet to help you determine your Required Minimum Distribution each year, although most custodians will make this calculation on your behalf and inform you of the amount.

For example, a $100,000 account balance divided by a 26.5 life expectancy factor or applicable denominator for a 73-year-old = $3,773.58 RMD.

Want some help? Let us know here, and if we’re a good fit, we can help you calculate your RMDs and make a comprehensive plan!

5. When is the deadline to withdraw your RMD?

The RMD deadline is December 31 each year.

The exception is your first RMD, which can be delayed until April 1 of the year following the year you turn 73. If you choose to wait until April 1 for your first RMD, it is important to note that means taking two RMDs in one calendar year—one in April and one by the December 31 deadline, which means you double-up on taxable income.

For example, if you turn 73 in 2026, your first RMD is due by April 1, 2027 (based on your account balance on December 31, 2025). Your second RMD for tax year 2027 must also be taken by December 31, 2027 (based on your account balance on December 31, 2026).

6. What if you miss the deadline or take less than the required amount?

The penalty for not taking an RMD on time or for taking less than the required amount is a 25% excise tax on the amount not withdrawn. No, thank you!

If the RMD is corrected within two years, the penalty can be reduced to 10%.

To learn even more about RMDs, check out the IRS FAQs.

RMDs don’t have to be complicated, and we’re here to help! We’d love to meet with you to discuss your RMDs as part of a comprehensive financial plan and answer any questions you may have. These may include how RMDs affect taxes, if you have to take an RMD from each retirement account, and if taking more than the minimum makes sense for you.

Simply fill out our contact form to set up a no-cost meeting with us today!

With your RMDs taken care of, you can focus on more important things—like opening presents and enjoying a slice of cake! From all of us at Reify, we wish you the happiest of birthdays!