Nobody sends a bill for this. Missing it costs a quarter of the shortfall.

Part 1

Nobody sends a bill

For decades a retirement account is a place money goes in. Then, in one specific year, federal law reverses it and money has to start coming out, in a minimum amount, whether or not the household needs it.

The mechanism is a required minimum distribution. What makes it unlike anything else in a tax year is that nothing prompts it. There is no bill, no notice and no due date printed on a statement. A custodian may calculate the figure and may remind you, but the obligation to take it is yours, and so is the consequence of not.

That consequence is unusual too. It is not interest on a late payment. It is an excise tax of 25 percent of the amount that ought to have been withdrawn and was not, which falls to 10 percent if the mistake is put right inside a defined window. A missed withdrawal of $20,000 is a $5,000 penalty on money that was sitting in your own account the whole time.

These are federal tax rules and they apply the same way in every state. What each state then does with the income once it lands in a return is a separate question that varies widely.

This guide is educational information. It is not legal, tax or financial advice.

Part 2

The year it starts, and the two ways to delay it

Federal law fixes a starting point it calls the applicable age.

• For anyone who reached 72 after the end of 2022 and reaches 73 before 2033, the applicable age is 73.
• For anyone who reaches 74 after the end of 2032, it is 75.

Reaching that age does not immediately trigger a deadline. What it triggers is a date the statute calls the required beginning date, which is April 1 of the year following the later of two things: the year you reach the applicable age, or the year you retire.

That second half is the still-working exception, and it is narrower than it sounds:

• It applies to a workplace plan, so a 401(k) at the employer you still work for can wait until you actually stop, but only where that plan provides for it. A plan is permitted to require distributions at the applicable age for everyone, so this is a question to put to the plan rather than an assumption to make.
• It does not apply to an individual retirement account. An IRA starts on schedule whether you are working or not.
• It does not apply to someone who owns 5 percent or more of the business sponsoring the plan.
• It covers the plan of the employer you are still with. Old plans left behind at previous employers are not still-working accounts.

Part 3

The deadline that doubles a year

Only the first required withdrawal gets the April 1 deadline. Every later one is due by December 31 of its own year. Those two facts collide in exactly one place.

Take someone who reaches 73 in 2026. Their first withdrawal is for 2026 and may be delayed until April 1, 2027. Their second withdrawal is for 2027 and is due by December 31, 2027. Delaying the first means both land in the 2027 tax year.

The result is two years of income in one return. That is not merely inconvenient. Income is what decides several other things at once:

• It can push the return into a higher marginal tax bracket.
• It can increase how much of a Social Security benefit is taxable.
• It sets the Medicare income surcharge two years later, which is a step rather than a slope, so crossing one line by a small amount costs the full step for twelve months.

Taking the first withdrawal in its own year instead, by December 31 of the year you reach the applicable age, keeps one year of income in one year. The delay to April 1 exists, and it is occasionally the right choice, but it is a choice rather than the default it looks like.

Part 4

How the number is arrived at

The calculation is a division. Take the account balance as of December 31 of the previous year and divide it by a life expectancy factor.

Two things follow from using the previous year's balance. A market that fell during the year does not reduce the withdrawal, because the figure was already fixed. And a market that rose does not increase it either. The number was set on the last day of the year before.

One qualification: money in transit between accounts at the turn of the year can require an adjustment to that balance, so the figure printed on a December statement is not always the final one for this purpose.

Which table

Federal tables supply the factor, and there are three:

• The uniform lifetime table, which is what almost everyone uses, including anyone whose spouse is not the sole beneficiary and anyone whose spouse is not more than ten years younger.
• The joint and last survivor table, used only where a spouse is the sole beneficiary of the account and is more than ten years younger. It produces a larger factor and therefore a smaller required withdrawal.
• The single life expectancy table, used by a beneficiary of an inherited account rather than by an owner.

A custodian will usually calculate the figure and may report it. Federal rules put the responsibility for taking the correct amount on the account owner regardless, so a wrong figure supplied by a company is still the owner's shortfall.

Part 5

The accounts that pool, and the ones that do not

Someone with several retirement accounts has to work out a figure for each of them separately. What differs is whether those figures can then be taken from wherever is convenient.

The last two rows are where the money is lost. Someone who spent a career at three employers and left a 401(k) at each has three separate obligations that cannot be satisfied from one place. Taking the whole combined amount out of the largest plan leaves the other two short, and each shortfall carries its own penalty.

The 403(b) row is a genuine oddity worth noticing, because a 403(b) behaves like an IRA for this purpose while a 401(k) does not, and the two are otherwise usually described together.

Inherited accounts sit in their own universe entirely. An IRA you hold as a beneficiary can be pooled only with other IRAs inherited from the same person, and never with an IRA you own yourself. Someone who inherited an account and also has their own has two separate obligations that cannot be satisfied from one another, however similar the two accounts look on a statement.

Part 6

What is outside all of this

Not every retirement account is subject to a required withdrawal.

A Roth IRA requires nothing during the owner's lifetime. The money can stay where it is indefinitely.

A designated Roth account inside a 401(k) or a 403(b) is also exempt during the owner's life. That is recent, effective for tax years beginning after December 31, 2023, and it removed a longstanding inconsistency where Roth money inside a workplace plan was treated less favorably than the same money in a Roth IRA. Anyone reading older paperwork, or remembering older advice, will find the opposite rule in it.

Both exemptions end at death. A beneficiary of a Roth IRA or a designated Roth account is subject to withdrawal rules even though the original owner never was, which surprises families who understood the account to be free of them.

What a beneficiary faces

For most beneficiaries of someone who died after 2019, the entire balance has to be distributed within ten years. A narrower group is treated differently, and it includes a surviving spouse, a child of the deceased who has not reached majority, someone disabled or chronically ill, and anyone not more than ten years younger than the person who died.

The ten year deadline applies whether the person died before or after their own required beginning date. What changes with that date is whether anything is required in the meantime. Where the owner had already reached their required beginning date, most beneficiaries have to take an amount in each of the intervening years as well as emptying the account by the tenth. Where the owner died before it, there is no annual requirement and only the ten year deadline applies.

Part 7

The withdrawal that never becomes income

There is one route that satisfies a required withdrawal without the money ever appearing as income, and it is available earlier than the withdrawals themselves.

Federal law allows a qualified charitable distribution: an amount paid directly by the account trustee to a qualifying charity, from an individual retirement account, on or after the date the owner reaches 70 and a half. It is still a distribution from the account, so it counts toward the required amount for that year. It is also excluded from gross income.

Three conditions do the work, and each is a way to get it wrong:

• It has to go directly from the trustee to the charity. Money withdrawn to a personal account and then donated is an ordinary withdrawal followed by an ordinary gift, and the two are taxed differently.
• The recipient has to be a qualifying charity. Donor advised funds and certain supporting organizations are specifically excluded.
• The age is 70 and a half, which is not the age at which withdrawals become required. The two ages are different and always have been.

There is an annual limit on how much can be treated this way, and the amount that can be excluded is reduced where the owner made deductible contributions to an individual retirement account after reaching 70 and a half.

Order matters, for a reason that is arithmetic rather than legal. A required amount can only be satisfied once. Where it has already been withdrawn in the ordinary way, a charitable transfer made later in the same year cannot retrospectively change how that earlier withdrawal was taxed. This is a description of how the two interact and not a suggestion about sequencing, which is a conversation for someone who can see the whole return.

Part 8

The penalty, and the way out of most of it

Where the amount taken during a year is less than the required minimum, federal law imposes an excise tax of 25 percent of the difference. It is charged to the person required to take the money, not to the plan.

The rate falls to 10 percent where two things happen inside what the statute calls the correction window: the missing amount is actually withdrawn from the same plan, and a return reflecting the tax is filed.

That window is more generous than most people assume. It runs until the earliest of three events: a notice of deficiency being mailed, the tax being assessed, or the last day of the second tax year beginning after the year in which the tax arose. In ordinary circumstances, where nothing has yet been assessed, that is roughly two years to notice and fix a missed withdrawal.

The waiver

Separately from the reduction, federal law allows the tax to be waived altogether. Where the taxpayer establishes that the shortfall was due to reasonable error, and that reasonable steps are being taken to remedy it, the tax may be waived for that year. It is a discretionary relief rather than an entitlement, and it has to be asked for, but a shortfall caused by a custodian's miscalculation or a plan nobody was told about is exactly the shape of case it exists for.

Part 9

The one afternoon checklist

The first three items find the problem. The rest prevent it.

• List every retirement account in the household, including plans left behind at former employers. This list is the whole exercise, and an account nobody remembers is the one that generates a penalty.
• Mark each one as an IRA, a 403(b), a 401(k), a 457(b) or a Roth. The category decides whether it can be pooled with anything else.
• Write down your applicable age and the calendar year you reach it.
• For any workplace plan at an employer you still work for, check whether you own 5 percent or more of that business. If you do, the delay does not apply to you.
• Decide, deliberately, whether to take the first withdrawal in its own year or delay it to April 1. Add both years together before deciding.
• Check which life expectancy table applies. The joint table only helps where a spouse is the sole beneficiary and more than ten years younger.
• For each 401(k) and 457(b), arrange its own withdrawal. They cannot be covered from anywhere else.
• Confirm the December 31 balance the calculation was based on, rather than accepting a figure without seeing where it came from.
• If some of the withdrawal is going to charity anyway, check whether it can go directly from the trustee instead, which keeps it out of income entirely.
• If a withdrawal was missed in a past year, take it now and file the form reporting the tax, while the correction window is still open. Where the cause was a genuine error rather than inattention, ask about the waiver as well as the reduction.
• If you hold an inherited account, establish the date the original owner died and whether they had reached their own required beginning date. That one date decides whether anything is due in years one to nine.