RMD Deadline 2026: The December 31 Trap That Costs You 25%

Walt turned 73 this past March, a retired machinist outside Toledo with about $600,000 sitting in a traditional IRA he had barely touched in eight years. He always figured he would tap it when he needed it, on his own schedule. What he did not know until his tax preparer mentioned it in passing this summer is that the schedule is no longer his. The IRS picked a date for him, and that date is December 31.

That is the year Walt has to start taking required minimum distributions, the amount the government forces out of a pretax retirement account once you hit a certain age. The rules changed twice in the last few years, the penalty for getting it wrong is steep, and a few of the traps are quiet enough that people with good advisors still fall into them. If you or a parent turned 73 this year, this is the fall to get it right.

The one date the IRS cares about

A required minimum distribution, or RMD, is the government finally collecting on a deal you made decades ago. Money you put into a traditional 401(k) or IRA went in before taxes, grew without taxes, and at some point the IRS wants its cut. So once you reach RMD age it requires you to pull out a minimum slice each year and pay ordinary income tax on it.

The age is 73 for anyone born between 1951 and 1959, a change SECURE 2.0 made in 2023, according to the Congressional Research Service. If you were born in 1960 or later, your number is 75. Roth IRAs never require distributions during your lifetime, and as of 2024 Roth balances inside a 401(k) do not either, so this whole exercise is about your pretax money.

The amount is not a mystery you have to guess at. You take your account balance from the prior December 31 and divide it by a life-expectancy factor the IRS publishes in its Uniform Lifetime Table. At 73 that factor is 26.5. Walt's $600,000 balance from the end of 2025, divided by 26.5, comes to about $22,642. That is the floor. He can always take more, but if he takes even a dollar less than that by the deadline, he has a problem.

The penalty is the part that makes this urgent

Miss the RMD and the IRS charges an excise tax of 25% on whatever you failed to withdraw. On Walt's $22,642, a complete miss would be a $5,660 penalty, and that is on top of the regular income tax he still owes once he does take the money.

There is a mercy clause. SECURE 2.0 cut the old 50% penalty in half, and it drops further, to 10%, if you fix the mistake inside a correction window, generally two years, and file Form 5329 to report it. The instructions to Form 5329 also let you request a full waiver if the shortfall was due to reasonable error and you have since taken the money. The IRS grants those waivers fairly often when you catch it yourself and act quickly. So a missed RMD is survivable. It is just an expensive, paperwork-heavy way to learn a deadline you could have simply put on the calendar.

Trap one: the first year has two deadlines hiding in it

Here is the wrinkle almost nobody sees coming, and it is aimed squarely at people in Walt's exact spot this year.

The law gives you a grace period on your very first RMD only. Instead of December 31 of the year you turn 73, you are allowed to push that first one to April 1 of the following year. For Walt, that means his 2026 distribution could technically wait until April 1, 2027. That sounds like a gift, and people take it without thinking twice.

The problem is that the April 1 grace period delays the first RMD but not the second. Your 2027 RMD is still due December 31, 2027. So if Walt waits until spring 2027 to take his 2026 money, he ends up pulling two full distributions in the same calendar year, roughly $45,000 of extra taxable income stacked onto one tax return. Fidelity's RMD guidance flags exactly this: doubling up can shove you into a higher bracket and, for retirees, can trip the income thresholds that raise your Medicare premiums a year or two later. For most people the better move is to take that first RMD by December 31 of the year you turn 73 and never let the two collide.

Trap two: your accounts do not talk to each other

The second trap catches people with more than one retirement account, which is most people who worked for a few employers.

The rule sounds simple until it isn't. If you have several traditional IRAs, you calculate the RMD for each one, but you are allowed to add them up and pull the whole total from just one IRA if you want. That flexibility is called aggregation, and it makes life easier.

The trap is that 401(k)s do not play by that rule. Each old 401(k) calculates its own RMD, and that amount has to come out of that specific 401(k). You cannot cover a 401(k) distribution by taking extra from your IRA, and you cannot cover an IRA distribution out of a 401(k). The two are separate silos that never touch. A late-August piece on 24/7 Wall St walked through a retiree who assumed her two accounts worked the same way, pulled everything from the IRA, left the 401(k) RMD unmet, and got hit with the penalty on the shortfall she never knew she owed.

Say Walt has a $400,000 IRA and a $200,000 401(k) from his last job. The IRA owes about $15,094 and the 401(k) owes about $7,547. If he pulls the full $22,642 from the IRA and calls it a day, his IRA is covered but his 401(k) RMD of $7,547 is still sitting there unmet, and the 25% penalty lands on that. The cleanest fix, when the plan allows, is to roll old 401(k)s into an IRA before RMDs start, so everything lives under the one set of rules that lets you aggregate.

The still-working exception, and who it does not cover

If you are past 73 and still on a payroll, there is a narrow break worth knowing. The still-working exception lets you delay RMDs from your current employer's plan while you keep working there, and Ed Slott and Company, a widely cited authority on IRA rules, notes the delay lasts until April 1 after the year you finally retire.

Two catches keep it from being the escape hatch people hope for. It applies only to the plan at the job you are still working, not to your IRAs and not to 401(k)s left behind at former employers, which all still require RMDs on the normal schedule. And it disappears entirely if you own more than 5% of the company sponsoring the plan, so most business owners do not get to use it. A 74-year-old working part-time who assumes every account is on hold is often wrong about all but one of them.

The move that turns the tax bill into a gift

If you give to charity anyway, there is one lever that makes the RMD sting a lot less. A qualified charitable distribution, or QCD, lets you send money straight from your IRA to a charity, and it counts toward your RMD while staying off your tax return as income.

For 2026 you can direct up to $111,000 this way, a figure that is now indexed to inflation, and you have to be at least 70 and a half. Because the money never lands in your income, a QCD can be more valuable than writing a check and deducting it, especially now that most retirees take the standard deduction and get no benefit from charitable write-offs at all. If Walt planned to give $5,000 to his church this year, routing it as a QCD would knock $5,000 off his taxable RMD instead of showing up as income he then tries, and probably fails, to deduct.

This is a calendar problem, not a crisis

None of this should scare anyone away from the accounts that funded a comfortable retirement. RMDs are not a penalty or a trick. They are the tax bill you deferred coming due on a predictable schedule, and for the average retiree the whole obligation is a single withdrawal handled in an afternoon.

Most big custodians will even calculate the number for you and set up an automatic distribution so you physically cannot miss the date. The people who get burned are almost always the ones who either took the April 1 grace period without doing the math, or assumed a 401(k) works like an IRA. Both mistakes are easy to sidestep once you know they exist, and late summer, with four months of runway before the deadline, is the right time to look rather than the last week of December.

Bottom Line

Walt spent an hour on the phone with his IRA custodian and turned a vague worry into a scheduled, automatic withdrawal he no longer has to think about. Here is what to do this week if you or a parent hit RMD age this year.

1. Confirm your age rule and your deadline. If you were born between 1951 and 1959, RMDs start at 73. Born in 1960 or later, it is 75. If this is your first RMD year, take it by December 31 rather than using the April 1 extension, so you never stack two distributions into one tax year.

2. List every pretax account and get each RMD in writing. Ask each custodian for the exact RMD on each IRA and each old 401(k). Remember the silos: IRAs can be combined, but every 401(k) distribution has to come out of that plan.

3. Automate the withdrawal before year end. Most brokerages let you schedule the RMD to pay out automatically each year. Set it up once and the 25% penalty stops being a risk you have to manage by hand.

4. If you give to charity, ask about a QCD. Sending part or all of your RMD directly to a charity from your IRA satisfies the requirement and keeps that money off your tax return. For 2026 the ceiling is $111,000.

The account was yours to build on your own timeline. Starting at 73, the withdrawals run on the government's timeline, and the only real cost is forgetting that the clock started.