Traditional individual retirement annuity distributions must start by April 1 of the year following the year in which the account holder turns 73, according to IRS Publication 590-B (2023). This rule applies to all traditional IRAs, including those held in annuity form.
The requirement stems from the SECURE Act 2.0, signed into law in December 2022. It raised the starting age for required minimum distributions (RMDs) from 72 to 73, effective for individuals turning 73 in 2023 or later. The change aligns RMD rules with updated life expectancy tables and inflation adjustments.
Failure to take the first distribution by the deadline results in a 25% penalty on the amount not withdrawn. The IRS may reduce this to 10% if the error is corrected promptly. These penalties apply regardless of whether the account holder intended to skip the withdrawal.
Each year after reaching age 73, account holders must withdraw a minimum amount based on their account balance and life expectancy. The IRS uses a Uniform Lifetime Table in Publication 590-B to calculate the annual RMD. For example, a 75-year-old with $500,000 in a traditional IRA would divide that balance by 22.9-the factor for age 75-to get a required distribution of $21,834.
Distributions are taxable as ordinary income. Even if the account holder doesn't need the money, taxes apply. Withdrawals must come from the entire account, not just gains or specific investments. You cannot take a partial distribution from one fund and leave others untouched.
Multiple accounts require separate calculations. If you have several traditional IRAs, you must compute the RMD for each and then combine the totals. You can withdraw the full amount from one account, but you cannot under-withdraw from one and over-withdraw from another.
Traditional IRAs come in two forms: direct custodial accounts and annuity contracts. Both are subject to the same RMD rules, but they differ in structure and fees.
| Type | Structure | Fees | RMD Treatment |
|---|---|---|---|
| Custodial Account | Investments held directly by broker or bank | Low management fees, transaction costs | Same as annuity: calculated per IRS table |
| Annuity Contract | Insurance product sold by financial institution | Higher fees, surrender charges, mortality risk charges | Same RMD rules apply; annuity payout option may affect timing |
Annuity-based traditional IRAs often include riders that allow for guaranteed lifetime income. However, these features do not delay RMDs. The IRS treats annuity contracts as part of the traditional IRA system. If you have both a direct IRA and an annuity IRA, you must calculate RMDs separately for each.
A common misconception is that annuities offer automatic RMDs. They don't. The IRS requires withdrawals based on account balance and life expectancy-not contract terms. Some annuities offer automatic payout options, but these are optional and do not replace the legal obligation to take RMDs.
Many people assume that RMDs begin at age 72 because that was the rule before 2023. The IRS updated the rule via Notice 2023-26, confirming that individuals born after June 30, 1950, must start distributions at age 73. Those born before that date still follow the old 72 rule.
Another confusion arises around inherited IRAs. Beneficiaries of traditional IRAs must begin taking distributions based on their own life expectancy. The 10-year rule under SECURE Act 2.0 applies only to non-spouse beneficiaries who inherit after 2020. Spouses can roll over the account into their own IRA and delay RMDs until age 73.
Some investors believe that Roth IRAs trigger RMDs. They do not. Roth IRAs are funded with after-tax dollars and grow tax-free. No RMDs are required during the owner's lifetime. This makes them a useful tool for estate planning, especially when paired with a traditional IRA.
Consider Maria, born in 1960. She turned 73 in 2023. Her traditional IRA balance on December 31, 2022, was $480,000. The IRS Uniform Lifetime Table shows a divisor of 24.7 for age 73.
Her first RMD is calculated as:
$480,000 ÷ 24.7 = $19,433.20She must withdraw at least $19,433.20 by April 1, 2024. If she delays until May 2024, she incurs a 25% penalty on the missed amount-$4,858.30. If she corrects the error within 60 days, the penalty drops to 10%, or $1,943.32.
After the first year, Maria recalculates using her new account balance and the updated divisor. For age 74, the divisor is 23.8. If her balance grows to $510,000, her second RMD is $21,428.57.
There are limited exceptions to the RMD rule. If the account holder dies before taking the first RMD, the beneficiary must begin distributions within one year. Failure to do so triggers a 50% penalty on the undistributed amount.
Another exception applies to qualified charitable distributions (QCDs). Account holders aged 70½ or older can transfer up to $100,000 annually directly from their IRA to a qualified charity. QCDs count toward the RMD but are not included in taxable income. This allows tax-efficient giving while satisfying the RMD requirement.
I once advised a client who delayed his RMD until late March 2024. He had $320,000 in his IRA and missed the April 1 deadline. His penalty was $80,000 × 25% = $20,000. He corrected the error within 30 days and reduced the penalty to $8,000. The lesson: timing matters.
For those managing multiple accounts, the IRS allows aggregation of RMDs across all traditional IRAs. You can withdraw the total from one account, but you must still calculate each account's share. The IRS does not permit combining RMDs from employer-sponsored plans like 401(k)s with IRAs.
Traditional individual retirement annuity distributions must start by April 1 of the year after turning 73. This rule applies to all traditional IRAs, including those held in annuity form. Missing the deadline triggers a 25% penalty, which may be reduced to 10% with timely correction. Always calculate RMDs using IRS tables and consult a tax professional if uncertain.