Required withdrawals at 73 — what the IRS makes you do

A Required Minimum Distribution is the amount the IRS requires you to withdraw from certain retirement accounts each year once you reach the applicable age. The rules live in IRC §401(a)(9) for employer plans and IRC §408(a)(6) for IRAs, with the calculation mechanics in Treasury Regulations §1.401(a)(9)-9.

The point of the RMD rule is straightforward: tax-deferred accounts cannot defer tax forever. RMDs force the deferred income out of the account so it can be taxed during the owner's lifetime.

The SECURE Act of 2019 raised the RMD start age from 70½ to 72. The SECURE 2.0 Act of 2022 raised it again. Under current law, the RMD beginning age is 73 for individuals who reach age 72 after December 31, 2022, and rises to 75 for individuals who reach age 74 after December 31, 2032.

Your first RMD can be deferred until April 1 of the year after the year you reach the applicable age (this is the "required beginning date"). Every subsequent RMD is due by December 31 of its year. If you defer the first RMD, you take two in that next year — be careful about the tax bracket consequences.

Subject to RMDs during the owner's lifetime: Traditional IRA, SEP IRA, SIMPLE IRA, 401(k), 403(b), governmental 457(b), and the federal Thrift Savings Plan.

Not subject to RMDs during the original owner's lifetime: Roth IRA. SECURE 2.0 also eliminated lifetime RMDs from designated Roth accounts in 401(k) and 403(b) plans, effective for tax years beginning after December 31, 2023.

Inherited IRAs are subject to their own set of distribution rules under SECURE and SECURE 2.0, including the 10-year rule for most non-spouse beneficiaries. The inherited-account rules are a separate topic and deserve their own conversation.

The basic formula is: prior-year December 31 account balance ÷ life-expectancy factor from the appropriate IRS table = RMD for the current year.

Most account owners use the Uniform Lifetime Table, found in Treasury Regulation §1.401(a)(9)-9. The factors were updated by the IRS effective for distribution calendar years beginning on or after January 1, 2022, to reflect longer life expectancies.

If your sole designated beneficiary is your spouse and your spouse is more than 10 years younger than you, you may use the Joint Life and Last Survivor Expectancy Table instead, which produces a smaller RMD.

RMDs from Traditional IRAs (including SEP and SIMPLE IRAs) are calculated separately for each account, but the total may be taken from any one or any combination of those IRAs. This is the IRA aggregation rule.

Employer plan RMDs (401(k), 403(b), 457(b), TSP) are not aggregable with IRAs and generally must be taken separately from each plan. There is a limited exception for 403(b) plans, which can be aggregated with each other (but still not with IRAs).

A fixed annuity held inside an IRA is subject to the same RMD rules as the rest of the IRA. The annuity's account value at the prior year-end is included in the calculation.

Once a contract is annuitized — converted into a stream of periodic payments meeting Treasury Regulation §1.401(a)(9)-6 requirements — the payments themselves generally satisfy the RMD for that contract, but the contract is then excluded from the rest-of-IRA aggregation calculation. This interaction is nuanced and is genuinely a CPA conversation.

Before SECURE 2.0, the penalty for failing to take a required RMD was 50% of the shortfall under IRC §4974. SECURE 2.0 reduced the penalty to 25% of the shortfall, and further to 10% if the shortfall is corrected within a defined correction window (generally by the end of the second year after the missed distribution).

If you miss an RMD, take it as soon as possible, then file Form 5329 with your return and request a waiver of the penalty for reasonable cause. The IRS has historically been willing to waive the penalty when the shortfall is corrected promptly.

If you are at least age 70½, you may direct up to a stated annual limit (indexed for inflation under SECURE 2.0) from your IRA directly to one or more qualified charities. The QCD counts toward your RMD for the year and is excluded from gross income, which can be more tax-efficient than taking the RMD and then donating the cash.

QCDs apply to IRAs only, not to 401(k)s or other employer plans. The 70½ age threshold for QCDs was not raised by SECURE 2.0 even though the RMD beginning age was — they are separate rules.