At age 73, investors must begin taking distributions from tax-deferred retirement accounts, even if still working. One exception: many workplace plans let you delay RMDs from your current employer’s plan until you retire if you are still employed and own no more than 5 percent of the business; IRAs and former employers’ plans get no such break. (Those born in 1960 or later start at age 75.) If you fail to take the full required minimum distribution (RMD), the IRS charges a 25 percent penalty on the shortfall, reduced to 10 percent if corrected within about two years. The rules cover traditional IRAs along with 401(k) and 403(b) plans; Roth IRAs and Roth 401(k)s are exempt during the owner’s lifetime, though inherited Roth accounts are.
Each year’s deadline is Dec. 31. Your RMD amount is fixed by your balance on the prior Dec. 31, so timing does not change what you owe; waiting until year end simply keeps the money growing tax-deferred longer. The initial RMD is due for the year in which you turn 73. You can wait as late as April 1 the following year, but that stacks two distributions into a single tax year, which could push you into a higher bracket. RMDs are taxed as regular income.
Roth Conversion
If you expect RMDs to push you into a higher bracket, shrink your tax-deferred balances before they begin. In the years before age 73, ideally low-income years after you retire, you can convert part of a traditional IRA or 401(k) to a Roth IRA. A conversion moves money directly from the pre-tax account to the Roth, so the annual Roth contribution limit, earned-income requirement and 10 percent early-withdrawal penalty do not apply. The amount converted is taxed as regular income that year, but the assets then grow tax-free with no lifetime RMDs. Two cautions: once RMDs begin, the year’s RMD must be withdrawn first and cannot itself be converted, and each conversion carries its own five-year holding period.
In-Kind Distributions
An in-kind RMD transfers securities from your retirement account to a taxable brokerage account without selling them first. The RMD amount is still taxed as regular income, but the shares stay invested. Because no cash changes hands, nothing is withheld; most custodians ask you to waive withholding or sell enough shares to cover it. If you waive it, cover the tax through estimated payments to avoid an underpayment penalty.
Your cost basis resets to the shares’ fair market value on the distribution date, and a new holding period begins. Growth after that is taxed at the lower long-term capital gain rate once the shares have been held more than a year.
For example, assume you distribute stock worth $20,000 that was bought inside the IRA for $12,000. The full $20,000 is taxed as regular income, not just the $8,000 of growth, because none of that money has been taxed yet. Your basis in the taxable account becomes $20,000, so you later pay capital gains tax only on appreciation above that.
Batching RMDs – Or Not
Many retirees hold more than one IRA (traditional, rollover, SEP or SIMPLE), and each has its own RMD. Although each account’s figure is calculated separately, you may add them together and withdraw the combined amount from whichever of those IRAs you prefer. The same rule applies among 403(b)s. You may not aggregate across account types: each 401(k) requires its own RMD, and inherited IRAs cannot be combined with your own (only with each other, if from the same decedent).
Qualified Charitable Distributions (QCD)
For the charity minded, a qualified charitable distribution has your IRA custodian pay a charity directly on your behalf. The amount satisfies some or all of your RMD yet never enters your taxable income, which lowers your adjusted gross income and helps whether or not you itemize. QCDs are available from age 70½, must come from an IRA (not a 401(k)), must be paid by the custodian directly to the charity, and cannot go to donor-advised funds or private foundations. The 2026 cap is $111,000 per person. Tell your tax preparer; the 1099-R will not flag it.
