RMD Rules Cut Penalties to 25% and Raise Starting Age to 73

Q: With major tax hikes looming, is now the last chance for retirees to perform a strategic Roth conversion?

No. For most retirees, this is not the “last chance” to do a Roth conversion because the feared 2026 federal tax-rate jump is no longer the main driver. Current federal brackets were extended, so the case for converting now is less about an expiring deadline and more about personal timing. The stronger reason to consider a Roth conversion is the retiree’s own tax path. Required minimum distributions now begin at 73 for many retirees, and later for younger cohorts, but once they start they can raise taxable income, increase the share of Social Security subject to tax, and trigger Medicare IRMAA surcharges. That makes the years after retirement but before RMDs begin the most valuable conversion window for many households. Recent RMD changes reinforce that planning opportunity. The later starting age gives retirees more years to convert before mandatory withdrawals begin. Roth 401(k)s no longer require RMDs for original owners, which also improves flexibility. But conversions still need careful sizing: filling lower tax brackets can work well, while converting too much in one year can create a higher tax bill and Medicare premium spikes. For retirees with large traditional IRA balances, or heirs likely to face the 10-year inherited IRA payout rule, partial multi-year conversions can still be highly effective. The best approach is usually to model several years at once, account for state taxes, and pay the conversion tax from non-retirement assets if possible.

Q: Inheriting an IRA can trigger a 'tax bomb'. What steps must you take within 60 days to avoid it?

To avoid an inherited-IRA “tax bomb,” the key move in the first 60 days is to get the money transferred correctly and start a tax-withdrawal plan immediately. If you are a non-spouse beneficiary, do not take the IRA payout into your own hands. Once a distribution is paid directly to you, it is generally taxable and cannot be rolled back within 60 days. Instead, the assets should be moved by direct trustee-to-trustee transfer into a properly titled inherited IRA, also called a beneficiary IRA. That preserves the account’s tax treatment and avoids triggering immediate income tax. If you are a surviving spouse, you have more flexibility. You can usually roll the assets into your own IRA or move them into an inherited IRA, and if you received the funds directly, the normal 60-day rollover rule may apply. Even so, a direct transfer is usually the safer route because it avoids withholding and deadline mistakes. Just as important, experts say the first 60 days should be used to classify your beneficiary status and map out a 10-year distribution strategy. Most non-spouse heirs now must empty the account within 10 years, and waiting until year 10 can create a large taxable lump sum that pushes you into higher brackets. Early planning helps spread withdrawals, manage annual RMD obligations where required, and reduce exposure to Medicare surcharges and other tax effects. In practice, that means contacting the custodian quickly and consulting a tax adviser before taking any distribution.

3 articles · Updated · The Motley Fool · Jun 12

Retirees now face a 25% penalty for missing a required minimum distribution, down from 50%, and the charge can fall to 10% if the mistake is corrected within two years.
Age 73 is now the standard starting point for RMDs on traditional IRAs, SEP IRAs and SIMPLE IRAs, with the threshold set to rise again to 75 by 2033.
Roth 401(k)s no longer require RMDs for original owners, giving savers more flexibility than traditional 401(k)s and traditional IRAs still allow.
$111,000 can be donated through a qualified charitable distribution in 2026, up from $108,000 in 2025, letting retirees satisfy RMD obligations without adding that amount to taxable income.
April 1 of the year after turning 73 is the deadline for a first RMD, after which annual withdrawals are generally due by Dec. 31; inherited traditional accounts also carry separate 10-year drawdown rules for many non-spouse heirs.