Required Minimum Distributions

Welsh, Heather 2024 Square Headshot
by Heather Welsh
Welsh, Heather 2024 Square Headshot
by Heather Welsh

Distributions for Account Owners
Required Minimum Distributions (RMDs) are minimum amounts that a retirement account owner must withdraw annually. The RMD rules apply to all employer sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. They also apply to traditional IRAs (Individual Retirement Accounts) and IRA-based plans such as SEPs (Simplified Employee Pension), SARSEPs (Salary Reduction Simplified Employee Pension), and SIMPLE IRAs (Savings Incentive Match Plan for Employees IRA). The rules are also applicable to Roth 401(k) accounts; however, they do not apply to Roth IRAs.

Distributions generally must begin by April 1st of the year following the year in which the account owner reaches age 73 (age 75 if born in 1960 or later). For all subsequent years, RMDs must be taken by December 31st. If one is still working at age 73/75, distributions may be delayed until after retirement, unless the account is an IRA or the individual owns 5% or more of the business sponsoring the retirement plan. Contributions to 403(b) plans made prior to 1987 (excluding any earnings) do not need to be distributed until the later of December 31st of the year in which the account owner reaches age 75 or retires. If records are not kept for the pre-1987 amounts, the entire account balance is subject to the age 73 RMD rules. For those who reached age 70 ½ prior to December 31, 2019, the required beginning date remains age 70 ½, as it was prior to passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. For those who had not reached age 70 ½ prior to passage of the SECURE Act but reached age 72 prior to December 31, 2022, the required beginning date was age 72. Generally, RMDs are calculated for by dividing the prior December 31st balance of an IRA or retirement plan account by a life expectancy factor published by the IRS (Internal Revenue Service). The following tables are referenced to determine the life expectancy factor:

  •  Joint and Last Survivor Table if the sole beneficiary of the account is the account owner’s spouse who is more than 10 years younger than the account owner
  • Uniform Lifetime Table if the account owner’s spouse is not the sole beneficiary or the spouse is not more than 10 years younger than the account owner
  • Single Life Expectancy Table if you are a beneficiary of an account

RMDs must be calculated separately for each IRA owned but may be withdrawn from one or more of the IRAs. This is also applicable for 403(b) contracts. For other types of retirement plans, such as 401(k) and 457(b) plans, RMDs must be taken separately from each account. Distributions are taxed as ordinary income; however, to the extent the RMD is a return of basis or a qualified distribution from a Roth IRA it will be tax-free. If insufficient distributions are taken, a 25% penalty tax is imposed on the amount not withdrawn (can be reduced to 10% if rectified within a Correction Window). The account owner may withdraw more than the RMD amount, but it will not count toward RMDs for future years.

Inherited IRAs

The SECURE Act significantly changed distribution requirements for inherited IRAs by essentially eliminating the option to ‘stretch’ distributions over a beneficiary’s life expectancy. In general, under prior law, if you left your IRA to your spouse, he or she could take over the account as if it was their own under the spousal IRA rules, which allowed the surviving spouse to roll the deceased spouse’s IRA into their own. This rule has not changed. Also under the prior law, if an IRA was left to a non-spouse beneficiary, like a child, the beneficiary could distribute the IRA over their remaining life expectancy provided certain rules were followed, hence ‘stretching’ the distribution out over a potentially long period of time. This provided significant tax savings to the beneficiaries in that they could spread the income over a large number of tax years and minimize the tax rates applied to the income. The new law under SECURE generally mandates that any IRA (traditional, rollover or Roth) inherited by a designated beneficiary other than the IRA or Qualified Plan owner’s spouse will have to take the distribution within 10 years of the owner’s death. Eligible beneficiaries are not subject to the 10-year rule and may continue to use the stretch provisions. For purposes of the Act, an eligible beneficiary is:

1. The surviving spouse of the IRA owner;
2. Is a disabled individual;
3. Is a chronically ill individual;
4. Is an individual who is not more than 10 years younger than the IRA owner; or
5. Is a child of the IRA owner who has not reached the age of majority. When said child reaches the age of majority, the 10-year rule shall apply the year after the child reaches the age of majority.

For purposes of the Act, a disabled individual is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to end in death or to be for a long-continued and indefinite duration. Proof of disability must be furnished in such form and fashion as the Secretary may require. A chronically ill individual is defined under the definition of qualified long-term-care insurance. This definition would provide that a chronically ill individual is an individual who:

1. Is unable to perform at least two activities of daily living for an indefinite (lengthy) period;
2. Has a level of disability similar to the Department of Health & Human Services’ disability definition requiring assistance with daily living functions; or
3. Requires substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment.

Based on proposed IRS regulations issued in February 2022 (still being finalized), distributions during the 10-year window will depend on whether the original IRA owner passed away before or after their Required Beginning Date (RBD). If death occurred prior to the RBD, the beneficiary has full flexibility on withdrawals taken during the 10-year period. If death occurred after the RBD, beneficiaries must take RMDs each year during the 10-year window based on their own life expectancy. The IRS has issued notices waiving penalties for those who would have missed RMDs in 2021-2023 based on the proposed regulations interpretation of the SECURE Act, though it is unclear if those RMDs may need to be made up later on regulations are finalized. For trust beneficiaries to be treated as designated beneficiaries, all of the following must apply. If these criteria are met, the trust will qualify as a “see-through trust,” and the 10-year rule will apply.

  •  The trust is valid under state law
  •  The trust is irrevocable or will be upon the death of the account owner
  • The trust beneficiaries are identifiable from the trust agreement
  • The custodian is provided with a copy of the trust agreement and certain additional documentation by October 31st of the year following the year the account owner passes away

If the above criteria are not met and the retirement plan owner passes away before his or her Required Beginning Date
(now age 73, or age 75 for those born in 1960 or later), distributions from the trust must be made under the 5-year rule that existed prior to SECURE. If these items are not satisfied and the retirement plan owner passes away after the Required Beginning Date, then assets are distributed from the retirement plan ratably over the deceased retirement plan owner’s life expectancy so that the benefits come out “at least as rapidly” as provided by the retirement plan owner’s life expectancy. The SECURE Act changed the way many people approach their planning. The elimination of stretch requires at least a basic review of all IRAs, plus all qualified plan assets of a household, since all 401(k) and similar plans will eventually be subject to the rules if left to a human beneficiary.


Disclosure: This material is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Diversification cannot assure profit or guarantee against loss. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses. Sequoia Financial Advisors, LLC makes no representations or warranties with respect to the accuracy, reliability, or utility of information obtained from third-parties. Certain assumptions may have been made by these sources in compiling such information, and changes to assumptions may have material impact on the information presented in these materials. Sequoia Financial Advisors, LLC does not provide tax or legal advice. Information about Sequoia can be found within Part 2A of the firm’s Form ADV, which is available at The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. Tax preparation is done by a 3rd party and not Sequoia Financial Group.