Required Minimum Distributions: How They Work, the December 31 Deadline, and What Happens If You Miss One

Required minimum distributions, or RMDs, are the IRS's way of making sure tax-deferred retirement money eventually gets withdrawn and taxed. The rules are not complicated in concept, but they are unforgiving in the details, and the end of the year is when mistakes tend to surface. This guide walks through the basics, the account-by-account traps, and what to do if you realize you came up short.

Which accounts have required minimum distributions?

RMDs generally apply to traditional IRAs, SEP and SIMPLE IRAs, and workplace plans such as 401(k), 403(b), and 457(b) plans, according to the IRS RMD overview. The same IRS page applies the rules to 457(b) plans, so if you have one, it is subject to RMDs too. Some workplace plans may allow the start date to be tied to retirement, so check your plan's terms (see the IRS RMD comparison chart). Roth IRA owners are not required to take withdrawals during their lifetime, per the same IRS page. The age at which RMDs begin is set by law and has changed in recent years, so confirm the starting age that applies to your birth year with the IRS or your tax professional. For first-year timing, see our guide to your first RMD at 73.

When is the RMD deadline?

For most years, the deadline is December 31. The first RMD is the exception: you can delay it until April 1 of the following year, as explained in the IRS RMD FAQs. Keep in mind that delaying the first one means taking two in the same year.

Because December is busy for custodians and the markets, many people prefer not to leave the distribution to the last week. Whether to take it earlier, later, or in installments depends on your cash flow and tax picture.

How do RMDs work when you have more than one account?

This is where most mistakes happen, because the IRS applies different rules to different account types:

• IRAs: You calculate the RMD separately for each IRA, but you may withdraw the total from one or more of them.
• 403(b) contracts: The same flexibility applies among 403(b) contracts.
• 401(k) and 457(b) plans: The RMD must be taken separately from each plan, so a 457(b) requirement cannot be satisfied by taking money from another account.

These points come from the IRS RMD FAQs. The practical lesson: a withdrawal from an IRA does not satisfy a 401(k) requirement, or the reverse. If you have an old 401(k) at a former employer plus an IRA, check each one.

The amount itself comes from your prior year-end balance and a life-expectancy factor in IRS Publication 590-B. Inherited accounts follow different rules, covered in our post on the inherited IRA 10-year rule.

What is the penalty for missing an RMD?

The IRS says the amount not withdrawn may be subject to an excise tax of 25%, reduced to 10% if the shortfall is corrected within two years, per the IRS RMD FAQs. The tax is reported on Form 5329, filed with your federal return for the year the RMD was missed.

What should you do if you missed one?

The IRS indicates a few steps are typically involved:

1. Take the missed distribution as soon as possible. Prompt correction is what can bring the rate down to 10%.
2. File Form 5329 with your return for the year of the shortfall.
3. Consider requesting a waiver. The IRS states the penalty may be waived if you establish the shortfall was due to reasonable error, by attaching a letter of explanation to Form 5329.

Whether a waiver is granted is up to the IRS, and your facts matter. A tax professional can help you document what happened.

Can giving to charity satisfy an RMD?

For people who are charitably inclined, a qualified charitable distribution from an IRA can count toward the RMD while staying out of taxable income. According to the IRS IRA distribution FAQs, the IRA must be owned by someone age 70½ or older, the money must be paid directly from the IRA to a qualified charity, and ongoing SEP and SIMPLE IRAs are excluded. The IRS describes this as an IRA rule, so ask your plan administrator before assuming a workplace plan qualifies. Publication 590-B covers the details, including the annual limit.

How do RMDs fit into your overall withdrawal plan?

RMDs are ordinary income for most account types, so they can affect your tax bracket, how much of your Social Security is taxed, and income-related Medicare premiums. Our post on which account to withdraw from first looks at how these pieces interact. Outcomes here depend on your income, filing status, accounts, and state.

A note worth highlighting: The most common RMD error is not misunderstanding the rules but losing track of an account. A year-end checklist of every IRA and workplace plan you own, with the amount required from each, can prevent most problems.

The bottom line

Know which accounts require distributions, calculate each one correctly, and set a reminder well before December 31. If you do miss one, acting quickly and talking with a tax professional can limit the cost. The right approach for you depends on your specific accounts and circumstances.

This article is general educational information, not tax or investment advice. RMD ages, deadlines, and penalty rules are set by the IRS and depend on your specific accounts, age, and circumstances. Consult a qualified tax professional before acting.