Required Minimum Distribution Age: When Do RMDs Start?

What are RMDs? A Required Minimum Distribution (RMD) is the minimum amount an individual must withdraw from their retirement account annually, starting at a specific age. Under the SECURE 2.0 Act, in 2024 the required minimum distribution age is 73 for individuals who turned 72 after December 31, 2022.

RMDs were put in place as a way for the government to ensure that individuals do not accumulate too much wealth in their retirement accounts and delay paying taxes on those funds. By requiring minimum distributions at a certain age, the government can collect tax revenue from these accounts.

If you recently turned or are nearing age 73, here are some of the important issues and rules to know about RMDs and their impact on your retirement income planning.

What are the current RMD rules as of 2024?

Below you will find the key takeaways of current RMD rules according to the IRS:

• The amount of each RMD is calculated based on your account balance at the end of the previous year and your life expectancy factor, which you can find in the IRS’s Uniform Lifetime Table. It’s crucial to ensure the correct calculation to avoid penalties.
• For your first RMD, you have until April 1st of the year following the year you turn 73 to make your withdrawal. For subsequent years, you need to take your RMD by December 31 of each calendar year until you die or your balance is reduced to zero.
• If you have multiple retirement accounts, you must calculate the RMD for each account separately. However, you can choose to withdraw the total amount from one or multiple accounts.
• The IRS imposes a penalty for failing to withdraw the RMD amount. This penalty is a hefty 50% excise tax on the amount of the RMD that was not withdrawn.
• Unlike traditional IRAs, Roth IRAs are not subject to RMD rules during the account owner’s lifetime. This makes Roth IRAs a strategic tool for wealth transfer and estate planning.

Learn more: What is retirement planning and how to choose the best retirement plan for you

When do you have to take your RMD?

When do RMDs start as of 2024? Due to recent legislation changes, understanding your first RMD due date can be a challenge: the current RMD age for those turning 73 in 2023 and beyond, is 73. However, RMDs start at age 72 for those who turned 72 before December 31, 2022. Additionally, the RMD age will increase to 75 in 2033.

Fortunately, you do have some flexibility as to when you actually have to take this first-year distribution. As mentioned above, you can take it during the year you reach age 73, or you can delay it until April 1st of the following year. This date is known as your required beginning date. 

If you opt to delay your first distribution until April 1st of the following year, you will be required to take two distributions during that year — your first year’s required distribution and your second year’s required distribution.

What are the exceptions to the required minimum distribution age?

Certain exceptions allow for different required minimum distribution (RMD) ages. 

1. If you’re still working and not a 5% owner of the business sponsoring your 401(k) plan, you may be able to delay your RMD from that account until you retire. This rule, however, does not apply to IRAs and other types of retirement plans. 
2. Those with Roth 401(k)s and Roth IRAs are not subject to RMD rules during the account owner’s lifetime, making them a useful retirement planning solution. Roth 401(k)s are generally subject to RMD rules, but recent legislation has aimed to align these rules with those of Roth IRAs, extending the benefits and flexibility of Roth savings. 
3. For beneficiaries who inherit retirement accounts, different sets of RMD rules apply. The timing and amounts of RMDs will depend on whether you are a spouse, a minor child, disabled or chronically ill, or if you fit within some other category. Understanding these exceptions can help you better plan your retirement withdrawals and reduce your tax liabilities. 

Always consult a financial advisor with experience offering retirement planning for high-net-worth individuals to navigate these rules, as your specific situation is unique and new legislation may alter RMD requirements.

Examples of the first RMD due date

Example 1: You have a traditional IRA. Your 72nd birthday was December 2, 2022, so you must take your first RMD by April 1, 2023. If you choose to delay your first distribution until 2023, you will have to take two required distributions during 2023 — one for 2022 and one for 2023. This is because your required distribution for 2023 cannot be delayed until the following year.

Example 2: You own more than 5% of your employer’s company and are still working at the company. Your 73rd birthday is on December 2, 2023. Under the SECURE 2.0 Act, you must take your first RMD from your current employer’s plan by April 1, 2024, regardless of your employment status.

Example 3: You participate in two plans — one with your current employer and one with your former employer. You own less than 5% of each company. Your 73rd birthday is on December 2, 2024. Under the SECURE 2.0 Act, you must start taking RMDs at age 73. You can delay your first RMD from your current employer’s plan until April 1, 2026 — the April 1st following the calendar year in which you retire. However, for your former employer’s plan, you must take your first distribution (for 2024) no later than April 1, 2025 — April 1st after reaching age 73.

Should you delay your first RMD?

You might delay taking your first distribution if you expect to be in a lower income tax bracket in the following year, maybe because you’re no longer working or will have less income from other sources. However, if you wait until the following year to take your first distribution, your second distribution must be made on or by December 31st of that same year.

Receiving your first and second RMDs in the same year may not be in your best interest. Since this “double” distribution will increase your taxable income for the year, it will probably cause you to pay more in federal and state income taxes. It could even push you into a higher federal income tax bracket for the year. 

In addition, the increased income may cause you to lose the benefit of certain tax exemptions and deductions that might otherwise be available to you. So the decision of whether to delay your first required distribution can be important and should be based on your personal tax situation.

The difference between taking your first RMD and waiting

For example, let’s say in 2023 you were unmarried, reached age 72½, and had a taxable income of $25,000. You had money in a traditional IRA, and your required minimum distribution (RMD) from the IRA for 2023 was $50,000. 

You took your first RMD in 2023, increasing your total income to $75,000 and resulting in a federal income tax of approximately $14,521. In 2024, you had the same taxable income of $25,000 and took your second RMD of $50,000, again bringing your total income to $75,000 with a federal income tax of approximately $14,489. The total federal income tax for 2022 and 2023 was $29,010.

Now, suppose you did not take your first RMD in 2023 and waited until 2024. In 2024, your taxable income was $25,000, resulting in a federal income tax of $3,286. In 2024, you took both your first RMD of $50,000 and your second RMD of $50,000, increasing your total income to $125,000 and resulting in a federal income tax of approximately $27,981. The total federal income tax for 2023 and 2024 was $31,267, which is $2,257 more than if you had taken your first RMD in 2023.

Given the potential complexities and significant tax implications of deciding when to take your RMD, working with a financial advisor can help you thoroughly assess your tax situation and make a better-informed decision.

Avidian Wealth Solutions can help create a comprehensive retirement plan with consideration to RMDs

If you have any questions about the required minimum distribution age or need assistance with planning your RMDs, schedule a conversation with Avidian Wealth Solutions today.

At Avidian, we pride ourselves on offering personalized financial guidance through our boutique family office model. This unique approach allows us to focus on your individual needs and offer tailored strategies that align with your financial goals. Our team of experienced advisors is dedicated to helping you navigate the complexities of retirement planning so that you make decisions that work to secure your financial future.

With office locations in Houston, Austin, Sugar Land, and The Woodlands, we are uniquely positioned to serve clients throughout Texas. Contact us today and let us help you create a retirement plan that works for you.

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