Most year-end planning deadlines are forgiving in the way that matters. If one is missed, an opportunity is lost, which is disappointing but rarely serious.
Required minimum distributions sit in a different category. If one is missed, the Internal Revenue Service assesses an excise tax on the amount that should have come out and did not, which makes this the one December 31 item where the cost of inattention is a number rather than a regret. (Source: Internal Revenue Service, Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).)
The rules themselves are not especially complicated, and most households handle them without difficulty. The problems tend to arise in a handful of specific situations where the general rule does not apply, and those situations are usually discovered in January rather than in November.
Key takeaways
The penalty is currently 25% of the shortfall, reduced to 10% if it is corrected within the correction window.
Roth IRAs are not subject to required distributions during the owner's lifetime, while traditional IRAs and most employer plans are.
IRAs can generally be aggregated. Employer plans cannot, which is why an old 401(k) is the account most often overlooked.
A qualified charitable distribution can satisfy the requirement and stay out of income entirely, up to $111,000 for 2026.
Quick links
Who has to take a required minimum distribution for 2026?
The starting point is age. Under current law, required minimum distributions generally begin in the year you reach age 73, with the required beginning date for a first distribution falling on April 1 of the following year, and every subsequent distribution due by December 31. (Source: Internal Revenue Service, Retirement Topics — Required Minimum Distributions (RMDs).)
Three categories of account behave differently, and the differences are where most of the errors tend to live.
Traditional IRAs, SEP IRAs and SIMPLE IRAs are subject to the rules once you reach the applicable age, whether or not you are still working.
Employer plans such as a 401(k) may allow a still-working participant who does not own more than 5% of the business to delay distributions from that employer's plan until retirement, if the plan document permits it.
Roth IRAs are not subject to required minimum distributions during the owner's lifetime, and designated Roth accounts inside employer plans are no longer subject to them either.
If you are not certain which of these applies to your accounts, this is a worthwhile November conversation rather than a December one, and we would be glad to walk through it with you.
What is the penalty for missing a required minimum distribution?
The excise tax is assessed on the shortfall, meaning the difference between what should have been distributed and what actually was. Current law sets that penalty at 25% of the shortfall, reduced to 10% if the failure is corrected within the correction window and the required distribution is taken. (Source: Internal Revenue Service, Publication 590-B.)
Two features of that are worth noting. The penalty applies to the shortfall rather than to the account, so a partial distribution reduces the exposure without eliminating it; and the reduced rate is available only when the correction is actually made, which means a missed distribution found in February is in a very different position from one that surfaces in a later audit.
The correction is usually straightforward. The discovery is the harder part. Most missed distributions are not refusals. They are accounts that nobody was watching, and the account nobody is watching is almost always an old employer plan or an inherited IRA.
Which situations cause the most missed distributions?
The first-year April 1 option, used without doing the arithmetic. Delaying a first distribution to April 1 of the following year is permitted, and it results in two taxable distributions landing in the same calendar year. For a household near a bracket threshold, or near one of the Medicare income thresholds covered in last month's article on how today's income sets your premium two years out, doubling up can cost more than the deferral saves.
Old employer plans. A 401(k) left behind at a former employer carries its own distribution requirement, and unlike IRAs, employer plans generally cannot be aggregated, so the distribution has to come out of each plan separately. Consolidating old plans is the simplest way to remove this problem permanently.
Inherited accounts. Beneficiaries have their own rules, and for many non-spouse beneficiaries the account has to be fully distributed within ten years, with annual distributions required during that window if the original owner had already begun taking them. These are frequently the accounts nobody is monitoring, because the beneficiary did not open them and does not think of them as retirement accounts. It is also worth knowing that a non-spousal inherited IRA cannot be converted to a Roth, so conversion is not available as a planning response here.
Multiple IRAs, and the assumption that each needs its own distribution. The required amount is calculated for each IRA, though the total may generally be taken from any one of them or spread across several, which gives you some useful control over which positions are sold. Employer plans do not work this way.
From our investment team
Which position funds the distribution is a portfolio decision as much as a tax one. When something has to be sold, the sale is a reasonable moment to trim whatever sits furthest from its target rather than whatever happens to be easiest to liquidate. Detail work of this kind is where a coordinated relationship earns its keep, and it tends to happen only when somebody is watching every account rather than the largest one.
Can a required distribution do something useful?
Frequently, yes, and the choice is worth making deliberately rather than defaulting to cash.
A qualified charitable distribution can satisfy the requirement. If you are 70 1/2 or older, a direct transfer from an IRA to a qualifying charity counts toward the required amount and is excluded from income, which is generally a better outcome than taking the distribution and deducting a gift of the same size. The 2026 limit is $111,000 per individual, indexed annually. The mechanics are covered in last month's article on charitable giving deadlines.
The distribution does not have to be spent. A required distribution is a requirement to remove money from the account rather than a requirement to consume it. The proceeds can be reinvested in a taxable account, and for a household with no current need for the income, that is often the right answer.
It can fund annual exclusion gifts. The 2026 annual gift tax exclusion is $19,000 per recipient, it does not carry forward, and a required distribution is a natural source for it.
Coordination of this kind is what our Intentional Client Experience™ pillar in our 5-Pillar Bellwether Wealth Framework™ is built to produce: the details handled before they become problems, by people who are looking at the whole picture rather than one account at a time.
Action items for year-end distributions
List every retirement account you own, including old employer plans and anything inherited.
Confirm which accounts are subject to a 2026 distribution requirement and what the required amount is for each.
Check whether any distribution has already been taken this year, including automatic ones set up some time ago.
If this is a first distribution year, run the arithmetic on taking it now rather than by April 1.
If you are 70 1/2 or older and charitably inclined, consider a qualified charitable distribution before year end.
Decide which positions fund the distribution rather than letting the custodian decide.
Confirm withholding, so the distribution does not create an estimated tax problem.
Submit the request with time to settle, since custodians are considerably slower in the last two weeks of December.
FAQs
When is the deadline for a 2026 required minimum distribution?
December 31, 2026, for anyone past their first distribution year. For a first distribution, the required beginning date is April 1 of the following year, though taking it in the current year avoids two distributions landing in the same tax year.
What is the penalty for missing a required minimum distribution?
An excise tax applies to the shortfall, currently 25%, reduced to 10% if corrected within the correction window.
Do I have to take a distribution from every account separately?
IRAs may generally be aggregated, so the total can be taken from one or several. Employer plans generally cannot, and each plan has to satisfy its own requirement.
Can I donate my required distribution to charity?
If you are 70 1/2 or older, a qualified charitable distribution transferred directly to a qualifying charity can satisfy the requirement and is excluded from income, subject to the 2026 limit of $111,000.
Save the date for January 20
Our next expert panel is Wednesday, January 20 at 2:00pm CT, with Clark Bellin, Andrew Siegler, and Alan and Brian Beaulieu.
Sign up here: https://lp.constantcontactpages.com/sl/PSG26oU/JanuaryPanel
Bellwether Wealth does not provide tax or legal advice. This material is provided for general informational and educational purposes only and should not be construed as individualized tax, legal, or investment advice. Tax laws and regulations are complex and subject to change, and their application depends on an individual's specific facts and circumstances. Before implementing any tax, retirement, charitable giving, estate planning, or other strategy discussed, consult with your CPA, tax professional, attorney, and/or other qualified professional regarding your individual circumstances. Advisory services offered through Bellwether Wealth, an SEC-registered investment adviser.