RMD Rules 2026: New Starting Ages, Reduced Penalties, and Inherited IRA Rules

Required Minimum Distributions (RMDs) are the IRS's way of ensuring you eventually pay taxes on retirement savings. They kick in at a certain age, and the amount you must withdraw increases as you get older. The SECURE Act 2.0 (signed in late 2023) made significant changes to RMD rules, effective in 2026 and beyond. The starting age is increasing, the penalties for missing RMDs are being reduced, and the rules for inherited IRAs have been completely overhauled. Here's exactly what you need to know.

RMD Starting Ages: The Phase-In

Under SECURE Act 2.0, the RMD starting age is gradually increasing. This is the most significant RMD change in decades:

RMD Starting Age Timeline

For those born before January 1, 1951:

• RMD already started at age 72 (old rule)

For those born January 1, 1951 - December 31, 1959:

• RMD starts at age 73 (as of 2023)

For those born January 1, 1960 and later:

• RMD starts at age 75 (as of 2033)

What This Means for Different Ages in 2026

• Age 70: No RMD required (can continue delaying)
• Age 72: No RMD required (the old starting age no longer applies)
• Age 73: RMD required (if born 1951-1959)
• Age 75+: RMD required

Critical Implication: If you're 71-72 in 2026, you have additional years to let your retirement accounts grow tax-deferred before RMDs kick in. This is a major advantage if you don't need the money.

Why This Matters: Extended Tax-Deferred Growth

The later RMD start date allows your retirement savings to continue compounding without forced withdrawals:

Example: Three-Year Advantage (Age 70-73)

Scenario: You have $1 million in a traditional 401(k) at age 70, earning 6% annually

Old Rules (RMDs at 70.5, then 72):

• Age 70: Forced withdrawal of $38,910 (IRS life expectancy factor)
• This money is taxed; after-tax money earns 4% (after 33% taxes)
• Account grows slower due to annual withdrawals

New Rules (RMDs at 73):

• Age 70-72: Account grows untouched at 6% annually
• $1,000,000 × 1.06 × 1.06 × 1.06 = $1,191,016 by age 73
• First RMD at 73 is calculated on this higher balance
• Additional 3 years of tax-deferred compounding = ~$191,000 more growth

For someone with substantial retirement savings and no need to withdraw, the later RMD start date is a powerful benefit.

How RMDs Are Calculated

RMDs are calculated using:

1. Your account balance on December 31 of the prior year
2. An IRS life expectancy factor from Publication 590-B

The Formula

RMD = Prior Year December 31 Account Balance ÷ IRS Life Expectancy Factor

Example RMD Calculation (2026)

Scenario: You're 75 years old on December 31, 2025 (so you turn 75 in 2026), with accounts:

• Traditional IRA: $400,000
• 401(k): $300,000
• Total: $700,000

Step 1: Get the IRS uniform lifetime table factor for age 75:

• Factor: 24.6 (look up in Publication 590-B, Appendix C)

Step 2: Calculate RMD:

• RMD = $700,000 ÷ 24.6 = $28,455

Step 3: Timing:

• You must withdraw $28,455 by December 31, 2026
• You can take it all at once or in monthly/quarterly installments
• For inherited accounts, timing differs (see below)

Key RMD Rules

• Account balance date: Use December 31 of the prior year (so your 2026 RMD is based on your Dec 31, 2025 balance)
• Timing: Must be withdrawn by December 31 each year (first RMD can be delayed, but it complicates things—just take it in year 1)
• Multiple accounts: For IRAs (traditional, SEP, SIMPLE), you can aggregate the balances and take one RMD from any account. For 401(k)s, each plan calculates its own RMD (though you can aggregate some plans for withdrawal purposes)

Penalties for Missing or Underpaying RMDs

This is where SECURE Act 2.0 made a major change. The penalties are significantly reduced:

Old Rule (Pre-2023)

• Penalty for missing an RMD: 50% of the amount you should have withdrawn
• If you were supposed to withdraw $28,455 but withdrew $0: Penalty = $14,228 (plus taxes on the $28,455 you eventually withdraw)
• This was harsh—the penalty matched the deferred tax

New Rule (2023+, Applies to 2024+ Tax Years)

• Primary penalty (first 2 years): 25% of the shortfall
• Reduced penalty (corrected within 2 years): 10% of the shortfall
• Excused penalty: Can petition IRS for reasonable cause (good records, attempts to comply, etc.)

Example: New Penalty Calculation

Scenario: You missed your 2025 RMD of $30,000 entirely

If corrected in 2025 (same year):

• Penalty: 10% × $30,000 = $3,000
• You also owe income tax on the $30,000

If corrected in 2026 (one year late):

• Penalty: 10% × $30,000 = $3,000
• You also owe income tax on the $30,000

If still not corrected by end of 2027:

• Penalty: 25% × $30,000 = $7,500
• You also owe income tax on the $30,000

Compared to old 50% penalty: You save $7,500 in penalties by using the new rules (assuming you correct it within 2 years)

Practical Impact

The reduced penalties mean:

• Missing an RMD is less financially catastrophic
• The IRS is more lenient on technicalities and honest mistakes
• You have 2-year window to correct and reduce penalty to 10%
• However, you should still try to take RMDs correctly—they're still a tax liability

Inherited IRAs and the SECURE Act 2.0 10-Year Rule

The most dramatic RMD change is for inherited IRAs (when you inherit an IRA from someone who died). Pre-SECURE Act rules allowed "stretch IRAs" where non-spouse beneficiaries could withdraw tiny amounts annually and defer taxes for decades. SECURE Act 2.0 dramatically changed this:

Old Rule (Pre-2020)

For non-spouse beneficiaries:

• Use the Uniform Lifetime table to determine annual RMDs from inherited IRA
• A beneficiary age 30 might take out only 3% of inherited balance annually
• The rest could stay invested and grow tax-deferred for 50+ years
• Example: Inherit $1M at age 30 → Take ~$30K/year, let $970K grow tax-deferred

For spouse beneficiaries:

• Could "treat as own" IRA and use own life expectancy
• Could defer withdrawals until the deceased's would-be RMD age

New Rule (SECURE Act 2.0, Effective 2023+)

For most non-spouse beneficiaries:

• 10-year rule: Must withdraw all inherited IRA funds by end of 10th year after death
• No annual distribution requirement during the 10 years (but must empty by year 10)
• Example: Inherit $1M at age 30 → Can leave invested for 10 years, but must withdraw $1M by year 11

Exceptions (Still have annual RMD requirements):

1. Spouse beneficiaries: Can still treat as own IRA or defer withdrawals
2. Minor children beneficiary: Special "conduit" rules until reaching age of majority
3. Disabled or chronically ill beneficiaries: Can stretch over life expectancy
4. Beneficiary not more than 10 years younger: Can stretch

Example: Inherited IRA Impact

Scenario: You inherit a $500,000 IRA from your parent who died in 2024. You're 40 years old.

Old Rule (Stretch IRA):

• Age 40-80 (40 years): Take ~1-3% annually ($5,000-$15,000/year)
• At age 80: Still have $200,000+ left growing tax-deferred
• Total taxable income from inheritance: Spread over decades

New Rule (10-Year Rule):

• Years 2024-2033 (10 years): Can leave money invested
• End of 2034: Must withdraw entire remaining balance
• This creates a tax bomb: If you have $400,000+ left, you owe income tax on the entire amount in that year
• Your taxable income spikes, pushing you into higher brackets

Comparison: Old rule allowed decades of tax-deferred growth for your heirs. New rule allows only 10 years, forcing large taxable withdrawals at the end.

How Inherited IRAs Work Under the 10-Year Rule

Step 1: Death Occurs

• Your benefactor dies; you inherit their IRA

Step 2: Establish Inherited IRA Account

• Create separate "inherited IRA" account (do not roll to your own IRA)
• Keep deceased's name in the account title: "John Smith, deceased, IRA for benefit of [your name]"

Step 3: Investment Period (Years 1-10)

• Choose whether to take annual RMDs or not (depends on whether deceased had begun RMDs)
• Generally, leave invested if you don't need the money
• Let it grow for 10 years

Step 4: Deadline (End of Year 10)

• Must withdraw entire remaining balance by December 31 of the 10th year after death
• This is a hard deadline—the IRS will not extend

Step 5: Tax Consequence

• Year 11: Large lump-sum taxable income
• If inherited $500,000 and left it invested: Withdrawal of $500,000+ all hits taxable income that year
• May push you into high bracket, trigger IRMAA Medicare penalties, or other complications

Strategy: Avoiding the Year 10 Tax Bomb

If you inherit an IRA, don't just leave it sitting until year 10. Plan for the tax:

Strategy 1: Spread Withdrawals

• Don't wait until year 10 to start withdrawals
• Begin withdrawing in year 2 or 3, taking a systematic amount each year
• By year 10, you're already in the habit and have spread the tax liability

Strategy 2: Roth Conversion

• Convert portions of inherited IRA to inherited Roth IRA during years 2-10
• Pay income tax on conversions now (when you can control the amount)
• Inherited Roth then grows tax-free and can be left to your heirs with no tax bomb

Strategy 3: Distribute to Multiple Beneficiaries

• If you inherited an IRA and have children, consider distributing to them (if they're beneficiaries)
• Each beneficiary gets their own 10-year window
• Spreads the tax liability across family members

Strategy 4: Charitable Contribution

• Use inherited IRA funds for charitable giving (via "inherited IRA charitable contribution")
• Avoids income tax on withdrawal used for qualified charitable distribution

Annual RMD Requirements During the 10-Year Period

An important detail: Whether you must take annual RMDs during the 10 years depends on whether the original owner had begun RMDs:

If original owner had NOT begun RMDs:

• You do NOT have to take annual RMDs years 1-10
• You must withdraw everything by end of year 10
• This is the "10-year rule" with no interim distributions

If original owner HAD begun RMDs:

• You MUST take annual RMDs each year (years 1-10)
• Plus you must withdraw everything by end of year 10
• This accelerates the tax liability

Who had "begun RMDs"? This means they were age 73+ in 2026 (or 72+ in 2024-2025) and required to take distributions.

Qualified Charitable Distributions (QCDs)

For those aged 70.5+, there's a valuable strategy that interacts with RMDs:

QCD Basics

• Allows direct rollover of up to $105,000/year from IRA to qualified charity (tax-free)
• Counts toward RMD requirement without triggering taxable income
• Only for those 70.5+; applies to IRAs, not 401(k)s

Example

Scenario: You're 75, required RMD is $30,000, AGI is $150,000

Option A: Traditional RMD

• Withdraw $30,000
• Report as taxable income: $150,000 + $30,000 = $180,000
• Triggers Medicare IRMAA increase

Option B: QCD

• Direct $30,000 from IRA to qualified charity
• Taxable income: $150,000 (QCD doesn't count)
• RMD satisfied, no IRMAA trigger
• Charity receives donation

QCD is much better if: You're charitably inclined and want to avoid increasing taxable income

Roth Accounts and RMDs

A critical advantage of Roth accounts:

Traditional 401(k): Subject to RMDs starting at age 73 Roth 401(k): NO RMDs during your lifetime (as of SECURE Act 2.0) Traditional IRA: Subject to RMDs starting at age 73 Roth IRA: NO RMDs during your lifetime; entire account can be passed to heirs tax-free

This is a major advantage of Roth conversions and Roth catch-up contributions during your working years. A large Roth balance allows complete control over withdrawals in retirement and no forced RMDs.

Key Takeaways

1. RMD starting age increases to 73 (for those born 1951-1959) and eventually 75 (born 1960+)—allowing extra years of tax-deferred growth

2. Penalties for missing RMDs drop from 50% to 25% (or 10% if corrected within 2 years)—significantly reducing the penalty for mistakes

3. Inherited IRAs are subject to the 10-year rule for non-spouse beneficiaries—must empty by end of year 10, creating a potential tax bomb in year 11

4. If the original owner had begun RMDs, beneficiaries must take annual RMDs during the 10-year period—accelerating the tax liability

5. Qualified Charitable Distributions (QCDs) remain powerful for charitably inclined retirees—satisfy RMDs without increasing taxable income

6. Roth accounts have no lifetime RMDs—making them valuable for accumulation and control in retirement

7. Start planning for inherited IRAs immediately—spread withdrawals over years 2-10 to avoid a tax spike in year 10

If you're approaching RMD age or have inherited an IRA, work with a CPA or financial advisor to understand your specific situation and plan strategically.