Required Minimum Distribution (RMD)
Required Minimum Distribution (RMD)
Mandatory annual withdrawals from tax-deferred retirement accounts that must begin at age 73 (for those born 1951-1959) or age 75 (for those born 1960 or later), calculated by dividing the prior year-end account balance by an IRS life expectancy factor. Failure to take RMDs results in a 25% excise tax on the amount not withdrawn (reduced to 10% if corrected within 2 years). Roth IRAs are exempt from RMDs during the owner's lifetime.
A 73-year-old client with a $500,000 traditional IRA must take an RMD of approximately $18,868 ($500,000 ÷ 26.5 life expectancy factor). If she has multiple traditional IRAs totaling $800,000, she can calculate the total RMD and withdraw it from any combination of her IRAs. However, her Roth IRA is exempt from RMDs during her lifetime.
RMD starting age is 73 (not 70½ or 72, which were pre-SECURE Act rules). The penalty is 25% (not 50%, which was the pre-SECURE 2.0 penalty). Roth IRAs have NO RMDs during the owner's lifetime, while traditional IRAs and most employer plans require RMDs. Traditional IRAs can be aggregated for RMD calculations, but 401(k)s must be calculated and withdrawn separately from each plan.
How This Is Tested
- Identifying which retirement accounts require RMDs and at what age
- Calculating RMD amounts using account balance and life expectancy factors
- Determining the penalty for failing to take required distributions
- Distinguishing between accounts that allow RMD aggregation (traditional IRAs, 403(b)s) versus those that require separate withdrawals (401(k)s)
- Understanding Roth IRA exemption from lifetime RMDs and inherited IRA RMD rules
- Recognizing qualified charitable distributions (QCDs) as tax-efficient RMD strategies
Regulatory Limits
| Description | Limit | Notes |
|---|---|---|
| RMD starting age (born 1951-1959) | Age 73 | Must begin by April 1 of year after turning 73 (SECURE 2.0) |
| RMD starting age (born 1960 or later) | Age 75 | SECURE 2.0 further delayed RMDs for younger generations |
| RMD penalty for failure to withdraw | 25% excise tax | Reduced to 10% if corrected within 2 years (SECURE 2.0 reduced from prior 50%) |
| Roth IRA RMD requirement | None during lifetime | Roth IRAs are exempt from RMDs while the owner is alive |
| First RMD deadline | April 1 of year after reaching RMD age | Results in two RMDs in one year if delayed to April 1 |
| Subsequent RMD deadlines | December 31 annually | All RMDs after the first must be taken by December 31 |
Example Exam Questions
Test your understanding with these practice questions. Select an answer to see the explanation.
Margaret, age 74 (born in 1952), has three retirement accounts: a traditional IRA worth $400,000, a Roth IRA worth $200,000, and a former employer 401(k) worth $300,000. She took her first RMD last year at age 73. For the current year, which accounts require her to take an RMD?
B is correct. Both the traditional IRA and the 401(k) require annual RMDs once Margaret has reached age 73. The Roth IRA does not require RMDs during the owner's lifetime, making it a valuable estate planning tool.
A is incorrect because Roth IRAs are exempt from lifetime RMDs regardless of the owner's age. C is incorrect because employer plans like 401(k)s require RMDs starting at age 73 (unless still working for that employer with less than 5% ownership, which is not indicated here). D is incorrect because RMDs are required annually for traditional IRAs and 401(k)s, not just a one-time distribution.
The Series 65 exam tests your understanding of which accounts require RMDs and which are exempt. Knowing that Roth IRAs have no lifetime RMD requirement is critical for retirement income planning and suitability recommendations, especially for clients who want to preserve wealth for heirs.
Under current law (SECURE 2.0), what is the excise tax penalty for failing to take a required minimum distribution from a traditional IRA?
B is correct. SECURE 2.0 (effective 2023) reduced the RMD penalty from 50% to 25% of the amount not withdrawn. The penalty can be further reduced to 10% if the missed RMD is corrected within 2 years, providing relief for inadvertent errors.
A (10%) is only the penalty if corrected within 2 years, not the initial penalty. C (50%) was the penalty before SECURE 2.0 and is now outdated. D (6% annual) is the penalty for excess IRA contributions, not for failing to take RMDs.
The Series 65 exam tests knowledge of current regulatory penalties, and the SECURE 2.0 Act made significant changes to RMD penalties. Understanding the 25%/10% penalty structure is essential for advising clients on the importance of timely RMD compliance and the consequences of failure.
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Access Free BetaRobert, age 74, has a traditional IRA with a balance of $600,000 as of December 31 of the prior year. Using the IRS Uniform Lifetime Table, his life expectancy factor is 25.5. What is his required minimum distribution for the current year?
C is correct. Calculate RMD: $600,000 (prior year-end balance) ÷ 25.5 (life expectancy factor) = $23,529.41, rounded to $23,529. The RMD formula always uses the prior year-end account balance divided by the age-appropriate life expectancy factor from IRS tables.
A ($15,300) incorrectly uses a factor of approximately 39.2, which is too high for age 74. B ($22,680) uses an incorrect divisor (approximately 26.5, which is the factor for age 73, not 74). D ($25,500) appears to divide by 23.5 instead of 25.5, a common calculation error.
RMD calculation questions are common on the Series 65 exam. You must understand the basic formula (account balance ÷ life expectancy factor) and be able to perform the calculation accurately. This demonstrates practical competency in helping clients plan for required retirement distributions.
All of the following statements about Required Minimum Distributions are accurate EXCEPT
C is correct (the EXCEPT answer). Roth IRAs do NOT require RMDs during the owner's lifetime. This is a fundamental distinction between Roth and traditional retirement accounts and makes Roth IRAs valuable for estate planning since funds can continue growing tax-free.
A is accurate: RMDs must begin by April 1 of the year following the year the account owner turns 73 (for those born 1951-1959), though taking the first RMD by April 1 means two RMDs in one tax year. B is accurate: Traditional IRA owners can calculate their total RMD across all traditional IRAs and withdraw from any combination of accounts, though each 401(k) requires separate calculation and withdrawal. D is accurate: QCDs (up to $108,000 for 2025, indexed annually) allow direct transfers from IRAs to qualified charities, counting toward RMDs without increasing adjusted gross income.
The Series 65 exam tests your ability to distinguish between traditional and Roth IRA treatment. The Roth IRA lifetime RMD exemption is a critical planning advantage that advisers must understand when making suitability recommendations and developing tax-efficient retirement income strategies.
A client born in 1955 turns 73 this year and has multiple retirement accounts. Which of the following statements about her RMD obligations are accurate?
1. She can delay her first RMD until April 1 of next year
2. If she delays to April 1, she will have two RMDs in the same tax year
3. She can aggregate her traditional IRA and 401(k) RMDs and withdraw from either account
4. Failure to take the full RMD results in a 25% penalty on the shortfall
B is correct. Statements 1, 2, and 4 are accurate.
Statement 1 is TRUE: The first RMD can be delayed until April 1 of the year following the year she turns 73. This is the only RMD that has an April 1 deadline; all subsequent RMDs must be taken by December 31.
Statement 2 is TRUE: If she delays her first RMD to April 1 of next year, she must also take her second RMD by December 31 of that same year, resulting in two taxable distributions in one tax year. Many advisers recommend taking the first RMD by December 31 to avoid this double taxation year.
Statement 3 is FALSE: Traditional IRAs can be aggregated (calculate total RMD, withdraw from any IRA), but 401(k)s cannot be aggregated with IRAs. Each 401(k) requires a separate RMD calculation and must be withdrawn from that specific plan. 403(b) plans can aggregate with each other, but not with IRAs or 401(k)s.
Statement 4 is TRUE: Under SECURE 2.0, the penalty for failing to take the required minimum distribution is 25% of the amount that should have been withdrawn (reduced to 10% if corrected within 2 years).
The Series 65 exam tests detailed knowledge of RMD timing rules, aggregation rules, and penalties. Understanding that IRAs can aggregate but 401(k)s cannot, and knowing the first-year April 1 option creates a potential double-RMD year, demonstrates practical competency in retirement distribution planning and helps avoid costly client mistakes.
💡 Memory Aid
Think of RMDs as the IRS wanting their tax revenue: They gave you tax deferral for decades, now they want you to start the cash register at age 73 (born 1951-59) or 75 (born 1960+). Miss it? 25% penalty (a quarter of what you didn't take). But Roth IRAs skip the line forever during your lifetime because you already paid taxes going in. Remember: "73/75 or Pay the Fee, Roth is Tax-Free."
Related Concepts
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