Analysis by Elijah Finn, Registered Investment Advisor (RIA) & Principal Analyst, Core Capital Report.
The Starting Age and the SECURE Act
Required Minimum Distributions (RMDs) are mandatory withdrawals that owners of certain tax-advantaged retirement accounts (such as Traditional IRAs, 401(k)s, 403(b)s, and other pre-tax contribution plans) must begin taking once they reach a specific age. These rules exist because the government only defers taxes on these savings; it doesn’t eliminate them.
The SECURE Act (Setting Every Community Up for Retirement Enhancement Act), enacted in late 2019, and the subsequent SECURE Act 2.0 (2022), introduced crucial changes to the RMD starting age, drastically affecting retirees:
| Date of Birth | RMD Starting Age |
| Before July 1, 1949 | 70½ (Previous Rule) |
| Between July 1, 1949 and Dec 31, 1950 | 72 |
| January 1, 1951 through 1959 | 73 |
| January 1, 1960 or later (SECURE Act 2.0) | 75 |
Compliance with these rules is critical, as the penalties for failing to take an RMD are severe.
Calculating Your RMD: How to Determine Your Withdrawal
The RMD is calculated by dividing the account balance at the end of the prior year by a life expectancy factor provided by the IRS.
Steps to Calculate the RMD (Own Accounts)
- Obtain Prior Year’s Balance: Determine the total fair market value of your eligible accounts (IRAs, 401(k)s, etc.) as of December 31st of the previous year.
- Find the Distribution Factor: Use the Uniform Lifetime Table from the IRS. This factor is based on your age and a beneficiary who is assumed to be 10 years younger than you (the IRS uses this table for most owners’ accounts).
- Perform the Calculation: Divide the December 31st balance by the factor from the IRS table.
$$\text{RMD} = \frac{\text{Account Balance as of previous Dec 31st}}{\text{IRS Life Expectancy Factor}}$$
Key Note: For IRAs, you must calculate the RMD separately for each account, but you can withdraw the total RMD from one or more of your IRA accounts. For 401(k)s, you must calculate and withdraw the RMD from each separate 401(k) plan.
The Penalty for Non-Compliance: 25% of the Missing Distribution
The IRS imposes one of the tax code’s harshest penalties for failing to take the full RMD or for taking it late.
Penalty Application (Excise Tax)
If you fail to withdraw the required RMD by the deadline (generally December 31st of the year it is due), the undistributed amount is subject to a substantial excise tax (penalty).
- Penalty Rate (Old Rule): The penalty used to be 50% of the undistributed amount.
- Penalty Rate (Post-SECURE Act 2.0): The penalty has been reduced to 25% of the amount not distributed.
- Further Reduction: If you correct the failure promptly (withdraw the missing amount and file a form correcting the failure), the penalty may be further reduced to 10%.
Penalty Example:
If your required RMD for the year is $10,000 and you only withdraw $4,000, the missing amount is $6,000.
$$\text{Penalty} = \text{\$6,000} \times 25\% = \text{\$1,500}$$
The IRS expects you to pay the $1,500 penalty in addition to the taxes on the $4,000 RMD you did take.
RMD Compliance Checklist
Compliance is non-negotiable for high-net-worth investors. Follow this checklist to avoid penalties:
| Condition | Required Action |
| Starting Age | Confirm your RMD starting age based on the SECURE Act (73 or 75 for most new retirees). |
| First RMD (Year 1) | You can postpone your first RMD until April 1st of the following year. Caution: If you postpone it, you must take two RMDs in that subsequent year (the first one and the second regular one), which could spike your annual tax liability. |
| Basis Calculation | Get the exact December 31st account value from your custodian or broker. |
| Non-Spouse Beneficiaries | If you inherited an account, ensure you understand the 10-Year Rule introduced by the SECURE Act, which drastically changed RMD requirements for most non-spouse beneficiaries. |
| Timely Withdrawals | Ensure all RMD withdrawals are completed by December 31st of every year thereafter (except for the first withdrawal, which has the April 1st deadline). |
| Roth 401(k)s | If you have a Roth 401(k), it is subject to RMDs. If you have a Roth IRA, it is not subject to RMDs during the original owner’s lifetime. |
Always use the IRS’s most recent life expectancy tables for your calculations, as they were updated in 2022.
Written by Elijah Finn, RIA.
⚠️ Financial Disclaimer & Advertising Disclosure
This article is for informational and educational purposes only. The content provided by Elijah Finn, RIA, does not constitute personalized financial, tax, or investment advice. Always consult with a qualified professional.
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Elijah Finn is a Registered Investment Advisor (RIA) and the Principal Analyst for Core Capital Report. With eight years of experience as a Portfolio Analyst at Morgan Stanley Wealth Management, Elijah specializes in translating complex financial strategies into clear, actionable advice for high-net-worth and middle-market clients. He holds an MBA in Finance from the University of Chicago Booth School of Business and maintains his Series 65 certification, adhering to a strict fiduciary standard in all analyses. His work focuses on maximizing long-term wealth through rigorous due diligence on investment vehicles, high-value credit cards, and robust insurance policies.