The Surprising Reality: RMDs for Traditional Account Owners Are Lifelong
Required minimum distributions (RMDs) are mandatory withdrawals from tax-deferred retirement accounts like traditional IRAs, 401(k)s, and 403(b)s. The purpose is to ensure the IRS can collect taxes on these funds. For the original account holder, RMDs do not stop at any specific age and continue for their entire life as long as there is a balance in the account. The annual RMD amount is calculated based on the account's value at the end of the previous year and a life expectancy factor provided by the IRS. These distributions are taxed as ordinary income.
The SECURE Act and RMD Age Changes
Recent legislation, including the SECURE Act and SECURE 2.0, has adjusted the age at which RMDs must begin, but it has not introduced a stopping age. The changes reflect increased life expectancies and offer more time for tax-deferred growth.
- Original SECURE Act (2019): Increased the RMD start age to 72 for those who turned 70½ after 2019.
- SECURE 2.0 Act (2022): Further delayed the start age:
- To 73 for those turning 72 after 2022 and 73 before 2033.
- To 75 for those turning 74 after 2032 (born 1960 or later).
While these acts extend the tax-deferred period, they do not eliminate the eventual RMD requirement.
Exceptions to the RMD Rules
Some retirement accounts and situations are exempt from the standard RMD rules.
Roth IRAs
Original owners of Roth IRAs are not subject to RMDs during their lifetime. Since contributions are after-tax, there is no government requirement for withdrawal. Beneficiaries of inherited Roth IRAs, however, must take RMDs.
Roth 401(k)s and 403(b)s
Starting in 2024, SECURE 2.0 eliminated RMDs for original owners of Roth 401(k)s and 403(b)s, aligning them with Roth IRAs. Beneficiaries still have RMD obligations.
Still-Working Exception
Individuals still employed at age 73 or older may be able to delay RMDs from their current employer's plan until retirement, provided the plan allows and they are not a 5% owner of the company. This exception does not apply to IRAs.
Comparison of RMD Rules by Account Type
| Feature | Traditional IRA & 401(k) | Roth IRA | Inherited IRA (Non-Spouse) |
|---|---|---|---|
| RMD Start Age | Currently 73 (rising to 75) | No RMDs during owner's lifetime | Varies based on date of death |
| RMD Stop Age | No stopping age; continues for life | Never starts for the original owner | 10 years after death (with exceptions) |
| Account Growth | Tax-deferred until withdrawal | Tax-free upon qualified withdrawal | Continues tax-deferred or tax-free during payout period |
| Tax Treatment | Taxed as ordinary income | Tax-free upon qualified withdrawal | Varies (traditional vs. Roth) |
| Still-Working Exception | Applies to current employer plans if not a 5% owner | Not applicable | Not applicable |
Inherited IRAs and the 10-Year Rule
The SECURE Act introduced significant changes for beneficiaries inheriting retirement accounts after 2019. Most non-spouse beneficiaries are now subject to a 10-year rule, requiring the inherited account to be fully distributed within a decade of the original owner's death. Specific rules apply depending on whether the original owner died before or after their own RMDs began, potentially requiring annual RMDs within the 10-year period. The 10-year rule can lead to significant tax implications if not managed carefully.
Conclusion
Required minimum distributions from traditional retirement accounts are a lifelong commitment for the original account holder, beginning at age 73 (or 75 for those born in 1960 or later) and continuing as long as funds remain. There is no age at which RMDs simply stop. However, exceptions exist for Roth IRAs and, as of 2024, Roth 401(k)s and 403(b)s for the original owner. The rules for inherited accounts, particularly the 10-year rule for most non-spouse beneficiaries, are also distinct. Understanding these regulations and recent legislative changes is essential for effective retirement planning. Consulting a financial advisor is recommended for personalized guidance.
Navigating RMDs Effectively
Managing RMDs is a key part of a successful retirement strategy. Understanding the rules, including exceptions and the impact of the SECURE Act, allows retirees to plan for tax implications and explore options like Qualified Charitable Distributions or Roth conversions to manage their distributions effectively. Proactive planning can help minimize the tax burden associated with RMDs. You can find more detailed information on RMD calculations and related topics in resources like IRS Publication 590-B.
