Retirement Account Withdrawals and RMDs: Taxes, the 10% Penalty, and Deadlines

The short answer

Money you take out of a traditional IRA or 401(k) is generally taxed as ordinary income, except for any after-tax (nondeductible) amounts. Qualified distributions from a Roth IRA are tax-free. If you are under 59½, the taxable part may also be charged a 10% additional tax unless an exception applies. Once you reach your applicable age — 73 or 75, depending on your birth year — you generally must take required minimum distributions (RMDs) from traditional IRAs and employer plans each year.

Is the withdrawal taxable?

A Roth IRA distribution is qualified if it is made after the 5-year period that begins with the first year a contribution was made to any Roth IRA for you, and you are 59½ or older, disabled, the distribution is to a beneficiary after your death, or it is a first-time home purchase (up to $10,000 lifetime).

The 10% additional tax before 59½

For distributions before age 59½, the IRS charges an additional 10% on the part you must include in income. It is reported on Form 5329 and Schedule 2. If your Form 1099-R shows code 1 in box 7 and no exception applies, you can enter the tax directly on Schedule 2 without Form 5329. If an exception applies but box 7 does not show it, file Form 5329 to claim it.

Main exceptions

Each exception has its own conditions and dollar limits, explained in Publication 590-B, Publication 575, and the Form 5329 instructions. An exception removes only the 10% additional tax — the withdrawal can still be taxable income.

Example (illustrative, 2025)

Leo, age 45, takes $20,000 from his traditional IRA in 2025 to pay off a credit card. All of his past contributions were deducted, so the full amount is taxable, and no exception applies.

If Leo had instead used the money for qualified higher education expenses, the 10% additional tax might not apply — but the $20,000 would still be taxable income.

Withholding

• Employer plans: if an eligible rollover distribution from a plan is paid to you rather than rolled over directly, the payer generally must withhold 20% for income tax.
• IRAs: federal income tax withholding applies unless you elect out. If you elect out, you may need to make estimated tax payments.
• Withholding is a prepayment, not the final tax. The 10% additional tax and your actual tax rate are settled on your return.

Required minimum distributions (RMDs)

RMDs begin with the year you reach your applicable age. SECURE 2.0 raised the age, and the 2024 final regulations (T.D. 10001) set it by date of birth:

• Later RMDs: every RMD after the first is due by December 31 of its year.
• Several IRAs: figure the RMD for each IRA separately, but you can withdraw the total from one or more of them. RMDs from 401(k) plans must be taken from each plan separately.
• You are responsible: the custodian may calculate the amount, but the owner is responsible for taking the correct RMD.

Example: if you were born in 1952 and own a traditional IRA, you reach your applicable age of 73 in 2025. Your first RMD is for 2025 and can be taken as late as April 1, 2026. Your 2026 RMD is then due by December 31, 2026 — so if you wait, both are taxable in 2026.

Missed RMDs

The amount you should have withdrawn but did not (the shortfall) is subject to a 25% additional tax, reported on Form 5329 for the tax year that includes the RMD deadline. It drops to 10% if, during the correction window, you take the missed amount and file a return reflecting the tax. The window ends on the earliest of the date the IRS mails a deficiency notice for the tax, the date the tax is assessed, or the last day of the second tax year after the year the tax is imposed. The IRS may waive the tax if the shortfall was due to reasonable error and you are taking reasonable steps to fix it; to ask, file Form 5329 and attach a letter of explanation.

Inherited accounts (high level)

• The 10% additional tax does not apply to distributions to a beneficiary after the owner's death, but traditional account distributions are still taxable.
• 10-year rule: for owners who died after 2019, the SECURE Act generally requires the entire account to be distributed by December 31 of the year containing the 10th anniversary of the death — by the end of 2035 for a 2025 death.
• Exceptions to the 10-year rule apply to a surviving spouse, a child of the owner who has not reached the age of majority, a disabled or chronically ill person, and a person not more than 10 years younger than the owner.
• During the 10 years: if the owner died before their required beginning date and the 10-year rule applies, Publication 590-B says no distribution is required before the 10th year. Other situations can require yearly distributions. Inherited accounts are complex; see Publication 590-B or a tax professional.

Other things to know

• Social Security: taxable withdrawals and RMDs raise the income used to figure how much of your Social Security benefits is taxable. See the Social Security guide.
• NIIT: distributions from IRAs and qualified plans are not net investment income, although they can raise MAGI. See the NIIT guide.
• Foreign retirement accounts follow different rules; see Foreign pensions and retirement accounts.

Common mistakes

• Thinking an exception makes the withdrawal tax-free. It only removes the 10%.
• Using the age-55 rule for an IRA. It applies only to employer plans.
• Assuming withholding covers the full tax.
• Assuming everyone starts RMDs at 73. People born in 1960 or later start at 75.
• Delaying the first RMD without planning for two taxable RMDs in one year.
• Ignoring a missed RMD instead of correcting it and filing Form 5329.