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SERIES 65 | FINANCIAL REGULATION COURSES
A required minimum distribution is the minimum amount that the owner of a traditional individual retirement account, SEP IRA, SIMPLE IRA, or employer-sponsored qualified retirement plan must withdraw from that account each year once they reach the applicable starting age — currently seventy-three for most account owners — with the IRS imposing a significant excise tax on any shortfall between the required distribution and the amount actually withdrawn. The required minimum distribution framework is codified in Internal Revenue Code Section 401(a)(9) and is implemented through Treasury Regulations at 26 CFR Part 1, Sections 1.401(a)(9)-1 through 1.401(a)(9)-9, with IRS Publication 590-B providing the practical guidance and life expectancy tables used to calculate each year's required amount. RMDs exist because the tax-deferred retirement savings system is designed to provide income replacement during retirement — not to serve as an indefinite tax shelter or estate planning vehicle — and they ensure that accumulated tax-deferred savings are eventually distributed and subjected to income taxation rather than compounding in perpetuity free of income tax within the account.
The starting age for required minimum distributions has been raised three times by Congress since the Tax Reform Act of 1986 first codified the modern RMD framework, reflecting both increasing life expectancy and ongoing legislative debate about the appropriate balance between ensuring eventual tax collection and permitting retirees to defer distributions longer.
Under the original framework that governed for decades, RMDs were required beginning at age seventy and a half — a half-year designation that created significant confusion because the starting age depended on the specific month of the account owner's birthday rather than the calendar year in which they turned a particular whole-year age. The Setting Every Community Up for Retirement Enhancement Act of 2019 — the SECURE Act — raised the RMD starting age from seventy and a half to seventy-two for individuals who reached age seventy and a half after December 31, 2019, eliminating the confusing half-year calculation and substituting a cleaner whole-year threshold.
The SECURE 2.0 Act of 2022 — enacted as Division T of Public Law 117-328 — raised the RMD starting age twice more through a phased schedule. Individuals who turn age seventy-two after December 31, 2022, and who turn age seventy-three before January 1, 2033, must begin RMDs at age seventy-three. Individuals who turn age seventy-three after December 31, 2032 — those born in 1960 or later — will not be required to begin RMDs until age seventy-five. This phased structure means that the applicable starting age for any individual account owner depends specifically on their year of birth and requires careful attention to the applicable threshold rather than a single universal rule.
The RMD requirements under IRC Section 401(a)(9) apply to all tax-deferred retirement accounts that benefited from pre-tax contributions or tax-deferred earnings — specifically, traditional IRAs under IRC Section 408, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans sponsored by governmental entities, profit-sharing plans, defined benefit pension plans, and other qualified retirement plans under IRC Section 401(a). The common thread is that all contributions and earnings in these accounts have been sheltered from income tax, creating an obligation to eventually distribute and tax those funds.
Roth IRAs under IRC Section 408A are explicitly exempt from RMD requirements during the lifetime of the original account owner. Because Roth IRA contributions are made with after-tax dollars and qualified distributions are entirely tax-free, there is no deferred tax obligation for the government to eventually collect — the income tax was paid at the time of contribution. The SECURE 2.0 Act extended this RMD exemption to Roth accounts in employer-sponsored plans — Roth 401(k) and Roth 403(b) accounts — effective for tax years beginning after December 31, 2023, eliminating a prior disparity under which employer plan Roth accounts were subject to RMD rules despite their economic equivalence to Roth IRAs.
The required beginning date is the latest date by which the account owner must take the first RMD — it is not the latest date by which they should consider taking distributions, but the absolute deadline imposed by the tax code beyond which the excise tax penalty applies.
Under IRC Section 401(a)(9)(C), the required beginning date for IRA owners and, for most purposes, for participants in employer-sponsored qualified retirement plans, is April 1 of the calendar year following the calendar year in which the account owner reaches the applicable RMD starting age. An individual who reaches age seventy-three on any date during 2025 has until April 1, 2026 to take their first RMD — the RMD for the 2025 calendar year.
The April 1 deadline for the first RMD creates a critical timing complication that financial advisers must communicate clearly to clients approaching the RMD starting age. An account owner who delays the first RMD until April 1 of the following year must still take the second RMD — the RMD for that following year — by December 31 of the same year. This means the account owner takes two full RMDs in a single calendar year, which may push them into a higher marginal tax bracket, increase their Medicare premium surcharges through the Income-Related Monthly Adjustment Amount calculation, and produce other adverse tax consequences from the concentration of taxable income in a single year. For this reason, many financial advisers recommend that clients take the first RMD by December 31 of the year in which they reach the applicable starting age rather than delaying to the April 1 extension — accepting the earlier distribution to avoid the double-distribution year that the April 1 option creates.
After the first RMD, all subsequent RMDs must be taken by December 31 of each calendar year without exception — there is no further option to delay to April 1 for subsequent distributions.
The amount of each year's required minimum distribution is calculated by dividing the account balance as of December 31 of the prior calendar year by the applicable distribution period — a life expectancy factor from an IRS table published in IRS Publication 590-B and the Treasury Regulations.
The formula is straightforward: RMD equals the prior December 31 account balance divided by the applicable distribution period from the IRS life expectancy table.
The Uniform Lifetime Table — Table III in IRS Publication 590-B — is used by the vast majority of account owners. It applies to unmarried IRA owners, married IRA owners whose spouse is not the sole beneficiary, and married owners whose spouse is the sole beneficiary but is not more than ten years younger than the account owner. The Uniform Lifetime Table was updated effective January 1, 2022 to reflect improvements in actuarial life expectancy data — the 2022 update generally produced longer distribution periods and correspondingly smaller RMDs at any given age than the prior table.
A worked example illustrates the calculation. An individual reaches age seventy-four in 2025. Their IRA balance as of December 31, 2024 is five hundred thousand dollars. The distribution period from the Uniform Lifetime Table for age seventy-four is twenty-five and a half years. The 2025 RMD equals five hundred thousand dollars divided by twenty-five point five, equalling approximately nineteen thousand six hundred and eight dollars. This amount — approximately nineteen thousand six hundred dollars — is the minimum that must be withdrawn from the IRA during 2025. The account owner may withdraw more than the RMD if they wish — there is no ceiling on distributions, only a required minimum floor.
The Joint Life and Last Survivor Table — Table II in Publication 590-B — is used when the sole beneficiary of the IRA is a spouse who is more than ten years younger than the account owner. This table produces a longer distribution period — a lower annual RMD amount — reflecting the joint life expectancy of the owner and the significantly younger spouse. This exception recognises that in households with a large age gap between spouses, a longer distribution period is appropriate to provide income support across both spouses' lifetimes without depleting the account prematurely.
Account owners with multiple IRAs — which is common among investors who have accumulated accounts at several institutions over a working career — must calculate the RMD separately for each IRA account based on its individual December 31 balance and the applicable distribution period. However, the actual distribution does not need to be taken proportionately from each account — the account owner may aggregate all IRA RMDs and satisfy the total requirement by withdrawing the full aggregated amount from any one or any combination of their IRA accounts.
This aggregation privilege applies specifically to traditional IRAs, SEP IRAs, and SIMPLE IRAs — it does not extend across different account types. RMDs from 401(k) plans, 403(b) plans, and other employer-sponsored plans must be calculated separately for each plan and distributed from that specific plan — they cannot be aggregated with or satisfied by distributions from IRA accounts. Similarly, 403(b) plan RMDs may be aggregated among multiple 403(b) accounts held by the same individual, but 403(b) RMDs cannot be satisfied from 401(k) accounts or vice versa.
Failure to take the required minimum distribution by the applicable deadline — December 31 for all years after the first, and April 1 for the first year's distribution — results in an excise tax under IRC Section 4974 on the amount of the shortfall. The shortfall is defined as the required minimum distribution amount minus the amount actually distributed during the calendar year.
The SECURE 2.0 Act reduced the excise tax from fifty percent — the rate that had applied since the RMD rules were first enacted — to twenty-five percent effective for tax years beginning after December 31, 2022. The twenty-five percent excise tax applies to the shortfall unless the account owner corrects the error within the two-year correction window — the period beginning with the date of the failure and ending two years after the close of the calendar year in which the failure occurred. If correction is made within the two-year window, the excise tax rate is reduced to ten percent.
An account owner who failed to take a five thousand dollar RMD by December 31 and discovers the error before the two-year correction window closes should take the missed distribution immediately and file Form 5329 — Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts — with their federal income tax return, reporting the excise tax at the ten percent corrected rate of five hundred dollars rather than the twenty-five percent uncorrected rate of one thousand two hundred and fifty dollars.
The IRS may waive the excise tax entirely in cases of reasonable cause — illness, a change in address, erroneous advice received from the account's custodian, or other circumstances the IRS determines justify relief. The account owner must file Form 5329 and attach a written explanation of the reasonable cause to request waiver.
Every dollar of an RMD taken from a traditional IRA, SEP IRA, SIMPLE IRA, or pre-tax employer plan account is included in the account owner's gross income for the tax year in which the distribution is received and taxed as ordinary income at the account owner's applicable marginal rate. There is no special capital gains rate or preferential tax treatment for RMD amounts — the entire distribution is ordinary income.
This ordinary income treatment has several cascading tax consequences beyond the direct income tax liability. RMD income increases the account owner's modified adjusted gross income for purposes of calculating Medicare Part B and Part D premium surcharges — the Income-Related Monthly Adjustment Amount — which can add several thousand dollars annually to Medicare costs for higher-income beneficiaries. RMD income may cause a larger portion of Social Security benefits to become taxable under the provisional income calculation of IRC Section 86. It may reduce or eliminate eligibility for income-tested deductions and credits. And for account owners who did not need the income for living expenses, the forced distribution creates a taxable event on funds that could otherwise have continued compounding tax-deferred.
These cascading tax effects make careful RMD planning — including Roth conversion strategies to reduce future traditional IRA balances and thereby reduce future RMDs, qualified charitable distributions to satisfy RMDs without recognising taxable income, and strategic timing of distributions across years — a central component of retirement income planning for investment advisers operating under the fiduciary standard of the Investment Advisers Act of 1940.
The qualified charitable distribution — QCD — is a provision of the tax code that allows IRA owners who are at least seventy and a half years old to make direct charitable contributions from their IRA to eligible public charities of up to one hundred and five thousand dollars per year — a limit adjusted for inflation beginning in 2024 — that count toward satisfying the RMD without being included in the account owner's gross income. The QCD effectively allows the RMD to be satisfied tax-free when the account owner wishes to make charitable gifts — the funds transfer directly from the IRA to the charity without passing through the account owner's income.
The QCD was made permanent by the Protecting Americans from Tax Hikes Act of 2015 and has been an inflation-indexed provision since the SECURE 2.0 Act of 2022. The one hundred and five thousand dollar 2024 QCD limit is substantially above the typical RMD amount for most account owners, meaning the QCD can satisfy the RMD requirement entirely for many charitable account owners while eliminating the income tax that would otherwise be due on the distribution.
When an IRA or qualified plan account passes to a beneficiary upon the death of the original owner, the RMD rules applicable to the beneficiary differ significantly from those applicable to the original owner — and the SECURE Act of 2019 substantially changed the beneficiary distribution rules in ways that eliminated the stretch IRA strategy that had allowed non-spouse beneficiaries to take distributions over their own life expectancy.
For most non-spouse beneficiaries who inherit accounts from owners who died after December 31, 2019, the SECURE Act imposed a ten-year rule — the inherited account must be fully distributed by the end of the tenth calendar year following the year of the original owner's death, with no requirement to take annual distributions in years one through nine, only to empty the account by the ten-year deadline. This compressed distribution period — compared to the prior life expectancy rules that could extend distributions over thirty or more years for younger beneficiaries — substantially increases the annual income tax burden on inherited accounts and has been a major focus of post-SECURE Act retirement planning.
Eligible designated beneficiaries — including the surviving spouse, minor children of the deceased owner until they reach the age of majority, disabled or chronically ill individuals, and beneficiaries not more than ten years younger than the decedent — retain the right to take distributions over their life expectancy rather than being subject to the ten-year rule. Surviving spouses have the most favourable treatment — they may roll the inherited account into their own IRA and treat it as their own account for all purposes, including applying their own applicable RMD starting age rather than beginning distributions immediately.
Required minimum distributions are tested on the Series 65 examination in the context of retirement planning, tax-deferred account management, estate planning, and the specific rules governing distribution timing, calculation, and penalties.
The key points to retain are these.
Required minimum distributions are mandatory annual withdrawals from traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored qualified retirement plans under IRC Section 401(a)(9), designed to ensure that tax-deferred retirement savings are eventually distributed and subjected to income taxation. Roth IRAs are exempt from RMDs during the original owner's lifetime — as are Roth accounts in employer-sponsored plans for tax years beginning after December 31, 2023 per SECURE 2.0.
The starting age under current law — established by the SECURE 2.0 Act, Division T of Public Law 117-328 — is seventy-three for individuals reaching age seventy-two after December 31, 2022 and before January 1, 2033, and seventy-five for individuals born in 1960 or later turning seventy-three after December 31, 2032. The required beginning date for the first RMD is April 1 of the year following the year in which the account owner reaches the applicable starting age — but delaying to April 1 requires taking two RMDs in the following calendar year, which many advisers recommend against. All subsequent RMDs are due by December 31 of each year.
The RMD calculation equals the prior December 31 account balance divided by the applicable distribution period from the IRS Uniform Lifetime Table published in Publication 590-B — updated effective January 1, 2022 to reflect increased life expectancies and produce smaller RMDs. Multiple IRA RMDs may be aggregated and satisfied by withdrawing from any combination of IRA accounts. 401(k) and 403(b) plan RMDs must be taken from the specific plan and cannot be aggregated across different plan types.
The excise tax for insufficient distributions under IRC Section 4974 is twenty-five percent of the shortfall — reduced from fifty percent by SECURE 2.0 — falling to ten percent if corrected within the two-year correction window by taking the missed distribution and filing Form 5329. All RMD amounts are includible in gross income as ordinary income in the year received — triggering cascading effects on Medicare premium surcharges, Social Security benefit taxation, and eligibility for income-based deductions. Qualified charitable distributions of up to one hundred and five thousand dollars annually from IRAs for owners seventy and a half or older can satisfy RMD requirements without income inclusion — eliminating the income tax due on the RMD amount for account owners making charitable gifts. Beneficiaries inheriting accounts from owners dying after December 31, 2019 are generally subject to the ten-year rule requiring full distribution by the end of the tenth year following the owner's death, with eligible designated beneficiaries including surviving spouses retaining the right to stretch distributions over their life expectancy.
