What Happens if I Don’t Take Required Minimum Distributions?

Quick Answer

Some retirement accounts come with required minimum distributions. This requires you to begin making annual withdrawals once you reach a certain age. If you don’t, you could face a stiff IRS penalty. Minimum distribution requirements apply to tax-advantaged accounts like 401(k)s and traditional IRAs.

Son helping senior parents plan for retirement

Tax-deferred retirement accounts don't just help you build your nest egg. They can also unlock certain tax breaks during your working years—but certain rules apply. On top of annual contribution limits, some retirement accounts also come with required minimum distributions (RMDs). This requires you to begin making annual withdrawals once you reach a certain age. If you don't, you could face a stiff IRS penalty.

Here's a closer look at how RMDs work and what happens if you fail to take them.

What Is a Required Minimum Distribution?

RMDs apply to certain tax-advantaged retirement accounts. That includes:

RMDs are meant to offset some of the tax benefits these accounts offer. Money you put into a 401(k) or another tax-advantaged retirement account is tax deductible, which means it lowers your taxable income today. These types of accounts allow for tax-free growth and aren't taxed until you withdraw funds in retirement. Most earners can also write off traditional IRA contributions.

RMDs prevent account holders from postponing distributions—and the tax bill that comes with them—for too long. Without RMDs, you could continue letting your money grow and only withdraw funds on an as-needed basis.

As of 2023, you must begin taking RMDs at age 73. That will jump to 75 in 2033.

Starting Age for Required Minimum Distributions, by Account
IRAs Defined Contribution Plans:

401(k), 403(b), Etc.

April 1 of the year following the calendar year you turn 73 Typically April 1 of the year following the calendar year you:

  • Turn 73 or
  • Retire (if the plan allows)

How Are RMDs Calculated?

RMD amounts are based on a specific IRS formula. You start with the account's prior end-of-year balance, then divide that amount by a life expectancy factor. Depending on your situation, you'll use one of three IRS charts to determine your RMD amount.

  • Single Life Expectancy Table I: You're inheriting an IRA.
  • The Joint and Last Survivor Table II: Your spouse is more than 10 years younger than you and the sole beneficiary of the account.
  • Uniform Lifetime Table III: Your spouse is not more than 10 years younger than you or not your sole beneficiary.

As an example, let's say your 401(k) balance was $300,000 at the end of last year. You and your spouse are both 73 years old. Using IRS table III, your life expectancy factor is 26.5. Your RMD would be $11,321 ($300,000 divided by 26.5). If you have other tax-deferred accounts, you'll be responsible for RMDs on those too.

What Are the Penalties for Not Taking a Required Minimum Distribution?

Skipping out on your RMDs can trigger a significant penalty. It used to be 50% of the amount not taken, but that number decreased to 25% in 2023. In the example above, where your 401(k) balance is $300,000, that could work out to a penalty of over $2,830.

However, RMD penalties might be waived in cases where the shortage was an honest mistake and you're attempting to fix it. Either way, you'll need to file IRS form 5329 with your federal tax return for that year. The penalty will be tacked on as an excise tax, increasing your total tax liability.

What if You Don't Need Your Required Minimum Distribution?

If you have other retirement income sources, there may be years where you don't need the money in your 401(k)s or IRAs. RMDs are required either way. To avoid being penalized, here are some different ways you could use your RMD:

Donate It to Charity

Folks who have an IRA and are older than 70½ can donate up to $100,000 directly from their IRA. That money will go toward their RMD amount if they haven't already taken their RMD for the year. It's called a qualified charitable distribution. You also won't be taxed on these donations. Regular RMDs, on the other hand, are taxed as income—and could even push you into a higher tax bracket.

Consider a Roth IRA Conversion After Taking Your RMD

RMDs do not apply to Roth IRAs (unless you've inherited one, as is illustrated above), and you can tap your contributions whenever you like, tax-free. Your earnings are also available without penalty if you're at least 59½ and have had the account for five years or more. It's possible to take a distribution from a traditional IRA, pay taxes on that income, then put that money into a Roth IRA. This reduces the traditional IRA balance—and future RMD amounts. But there are rules for this strategy.

You must take your full RMD first. After that, you can convert a portion of your remaining traditional IRA balance into a Roth IRA. Your RMD can go toward your tax bill for the conversion. If you don't meet the income requirements to contribute to a Roth IRA, you could also reinvest your RMD into a regular brokerage account.

Factor It Into Your Estate Plan

Another option is using RMDs to bolster your legacy. That may include estate planning strategies like establishing a trust for loved ones, which can help them avoid the probate process after you're gone. Trusts can also help reduce taxes owed by your estate and heirs. You can create a living trust during your lifetime and protect your assets from taxes and creditors.

The Bottom Line

Required minimum distributions apply to certain tax-advantaged retirement accounts. Failing to take them could result in a 25% penalty, though it may be possible to waive it if you remedy the situation in a timely manner. RMDs play an important role in retirement income planning and can affect your tax liability when you're no longer working.

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