Required Minimum Distributions

Required minimum distributions (RMDs) ensure that tax-deferred retirement savings are eventually withdrawn and taxed. The SECURE Act of 2019 and SECURE 2.0 Act of 2022 made significant changes to RMD rules, including higher beginning ages, reduced penalties, and elimination of Roth 401(k) RMDs. CFP professionals must understand current RMD ages, calculation methods, penalties, and inherited account rules.

RMD Beginning Age Under SECURE 2.0

The SECURE 2.0 Act increased the age at which RMDs must begin based on birth year:

Example: Someone born February 15, 1955, turns 73 in 2028. Their first RMD is due by April 1, 2029. All subsequent RMDs are due by December 31 of each year.

The Required Beginning Date (RBD)

The Required Beginning Date (RBD) is the deadline for taking your first RMD:

• April 1 of the year FOLLOWING the year you reach RMD age

Important: If you delay your first RMD to April 1, you must still take your second RMD by December 31 of that same year—resulting in two RMDs in one year (potentially pushing you into a higher tax bracket).

RMD Calculation Formula

The RMD is calculated using this formula:

RMD = Prior Year December 31 Account Balance / Life Expectancy Factor

Memory Aid: "Look BACK for money (prior year balance), look FORWARD for life (current year age for factor)"

The Uniform Lifetime Table

Most account owners use the Uniform Lifetime Table to determine their life expectancy factor. This table assumes a beneficiary 10 years younger than the account owner.

Exception - Joint Life Table: If the sole beneficiary is a spouse who is MORE than 10 years younger than the account owner, the Joint Life and Last Survivor Expectancy Table may be used, resulting in a smaller RMD.

RMD Calculation Example

2026 RMD = $500,000 / 24.6 = $20,325.20

This RMD must be taken by December 31, 2026 (or April 1, 2027, if it's the first RMD year).

Still-Working Exception

The still-working exception allows employees to delay RMDs from employer plans while still employed:

Requirements:

1. Must be currently employed by the plan sponsor
2. Must be a qualified plan (401(k), 403(b), etc.)—NOT an IRA
3. Must NOT be a 5% or greater owner of the company

Key Points:

• RMDs from the current employer's plan can be delayed until April 1 following the year of retirement
• RMDs from OTHER retirement accounts (IRAs, former employer plans) are still required
• If the employee is a 5% owner, no still-working exception applies—RMDs begin at the RMD age regardless of employment status

Example: A 74-year-old (born 1951) who still works for Company A and owns 2% of the company can delay RMDs from Company A's 401(k) until retirement. However, she must take RMDs from any IRAs and former employer plans.

Penalty for Missed RMDs

SECURE 2.0 reduced the penalty for failing to take RMDs:

Correcting a Missed RMD

To potentially qualify for the reduced 10% penalty:

1. Take the missed distribution as soon as possible
2. File Form 5329 with your tax return
3. Request penalty waiver for reasonable cause if applicable

Roth Account RMD Rules

Roth IRAs

• No RMDs during the owner's lifetime
• Beneficiaries ARE subject to RMD rules (see inherited IRA section)

Roth 401(k) / Roth 403(b)

• No RMDs starting January 1, 2024 (SECURE 2.0)
• Prior to 2024, Roth employer plans required RMDs (could be avoided by rolling to Roth IRA)
• Beneficiaries ARE subject to RMD rules

Exam Tip: The elimination of Roth 401(k) RMDs is a significant SECURE 2.0 change. Prior rules required Roth 401(k) participants to take RMDs or roll to a Roth IRA to avoid them.

Aggregation Rules for RMDs

Qualified Charitable Distributions (QCDs)

A Qualified Charitable Distribution (QCD) allows IRA owners age 70.5+ to donate up to $108,000 (2025 limit, indexed for inflation; $111,000 for 2026) directly from an IRA to charity.

QCD Benefits:

• Satisfies all or part of RMD
• Excluded from taxable income (better than deducting contribution)
• Does not increase AGI (protects Social Security taxation, Medicare premiums, etc.)

QCD Requirements:

• Owner must be 70.5 or older (not the RMD age)
• Distribution must go directly to a qualified 501(c)(3) charity
• Only from IRAs (not qualified plans)
• Cannot go to donor-advised funds or private foundations

Inherited IRA RMD Rules

The SECURE Act dramatically changed inherited IRA rules, eliminating the "stretch IRA" for most non-spouse beneficiaries.

Beneficiary Categories

The 10-Year Rule

For designated beneficiaries who are NOT eligible designated beneficiaries (most adult children, friends, siblings):

If decedent died BEFORE their RBD:

• Entire account must be emptied by December 31 of the 10th year following death
• No annual RMDs required—just empty by end of year 10

If decedent died AFTER their RBD (had begun RMDs):

• Entire account must be emptied by December 31 of the 10th year following death
• Annual RMDs ARE required each year using beneficiary's life expectancy
• 2025 is the first year these annual RMDs are strictly enforced (relief was provided for 2021-2024)

Minor Child Special Rule

When a minor child reaches the age of majority (varies by state, typically 18-21):

• They transition from EDB to regular designated beneficiary
• The 10-year clock begins at that point
• Example: Child inherits at age 10, uses stretch until age 21, then has 10 more years to empty the account

Inherited Roth IRA Rules

• Same 10-year and EDB rules apply to inherited Roth IRAs
• Distributions are tax-free if original owner's 5-year holding period was satisfied
• No RMDs during owner's lifetime, but beneficiary rules still apply after death

QDRO Distributions and RMDs

When retirement plan assets are transferred to a former spouse via QDRO:

The alternate payee uses their own age and life expectancy—not the original participant's.

Planning Considerations

Strategies to Minimize RMD Impact:

1. Roth Conversions before RMD age: Convert traditional to Roth in low-income years; Roth has no RMDs
2. QCDs at 70.5+: Reduce taxable income while satisfying charitable goals
3. Delay first RMD strategically: Balance tax bracket management with two-RMD year consequences
4. Continue working (if eligible): Still-working exception can defer qualified plan RMDs

Common RMD Mistakes to Avoid:

• Assuming all retirement accounts can be aggregated
• Forgetting inherited IRAs have separate RMD requirements
• Missing the 5% owner exception to still-working rule
• Taking RMD from wrong account type
• Not understanding Roth 401(k) rules changed in 2024

On the CFP Exam

Expect questions testing your ability to:

• Calculate RMDs using account balance and life expectancy factors
• Apply correct RMD beginning age based on birth year
• Determine whether still-working exception applies
• Distinguish between EDB, designated beneficiary, and non-designated beneficiary rules
• Understand the 10-year rule including annual RMD requirements when decedent had begun RMDs
• Identify when Roth accounts are subject to RMDs (only inherited Roths)