Are 401(k) Withdrawals Really Mandatory at Age 72? – Avoid This Mistake + FAQs

Confused about whether 401(k) withdrawals are mandatory at age 72? You’re not alone. According to a recent Nationwide survey, only 13% of 65-year-olds know when required minimum distributions start, risking a massive tax penalty ⚠️.

Yes—under federal tax law, most 401(k) owners must start taking withdrawals by age 72 (these are called required minimum distributions, or RMDs).

If you don’t withdraw the minimum in time, the IRS can impose a harsh penalty. However, there are a few exceptions and new law changes that adjust the rules slightly.

• The federal rules on mandatory 401(k) withdrawals at 72 (and how recent laws changed the age)
• How state taxes and laws can affect your 401(k) withdrawals in retirement
• Common mistakes people make with RMDs—and how to avoid costly errors
• Key terms explained: RMDs, IRAs, Roth conversions, the SECURE Act, and IRS regulations
• Real examples, comparisons (traditional vs. Roth 401(k)), and even court rulings to illustrate how RMDs work

Federal Law: Age 72 RMD Rules & Dodging the 50% Tax Penalty

Under federal law, once you reach age 72, you generally must start withdrawing a minimum amount from your 401(k) each year. This mandatory withdrawal is called a Required Minimum Distribution (RMD), and it ensures you eventually pay taxes on your tax-deferred retirement money.

The rule used to kick in even earlier (age 70½ for decades), but recent legislation (the SECURE Act) bumped it to 72. Now, new updates are raising the RMD age further in stages (to 73 and later 75), but age 72 remains a key threshold for those who reached it before these changes.

These withdrawals are mandatory for tax-deferred accounts like traditional 401(k)s and IRAs; the IRS won’t let your money sit tax-free forever once you hit the required age. However, there are a few exceptions. If you’re still working at 72 for the employer sponsoring your 401(k) and you don’t own over 5% of the company, you may be able to delay RMDs from that particular 401(k) until you retire.

This “still-working” exception only applies to your current employer’s plan; any IRAs or old 401(k)s must still follow the age-72 rule. (This exception doesn’t apply if you own 5% or more of the business—you must take RMDs at 72 even if still working.)

Timing matters, too. Your first required withdrawal generally must be taken by April 1 of the year after you turn 72. So if you celebrate your 72nd birthday in June, your initial RMD is due by April 1 of the next year.

But beware: delaying your first RMD until the following year means you’ll have to take two distributions in that year (one for the previous year and one for the current year), potentially stacking your taxable income.

What if you don’t take the RMD? Brace yourself: the IRS penalty for missing a required withdrawal is brutally high—historically a whopping 50% of the amount you failed to withdraw!

Recent changes trimmed this penalty to 25%, and it can even drop to 10% if you quickly fix the mistake and report it. Still, no one wants to give Uncle Sam an extra quarter of their money for nothing—so it’s crucial to follow the RMD rules.

The amount you must withdraw isn’t random; it’s calculated based on IRS life expectancy tables. At age 72, for example, the IRS assumes about 27 more years of life expectancy for you, meaning roughly 3.6% of your account balance must be withdrawn in that first year.

Put another way, they divide your 401(k)’s year-end balance by a factor (27.4 at age 72 under current tables) to determine your RMD. If your spouse is more than 10 years younger, the IRS even lets you use a special joint life expectancy table—this yields a smaller required withdrawal since the money is expected to last over two lifetimes.

Congress has tweaked these withdrawal rules recently: the SECURE Act of 2019 raised the RMD start age to 72 (up from 70½), and a follow-up law (SECURE 2.0 of 2022) pushes it further—to 73 starting in 2023, and eventually to 75 for those born in 1960 or later.

So if you’re not 72 yet, your mandatory withdrawal age might actually be higher by the time you get there. However, if you already turned 72 under the prior rules, you still had to start taking RMDs at 72 as originally scheduled. Staying up to date on these law changes is critical to avoid costly misunderstandings and penalties.

State Nuances: Tax Haven or Tax Trap? How Your State Affects 401(k) Withdrawals

When it comes to required withdrawals, federal law sets the rules on when you must take money out—but each state decides how those withdrawals get taxed. Your location could mean the difference between keeping most of your RMD or giving a chunk to the state tax man.

Some states are very friendly to retirees: they either don’t tax income at all, or they give special breaks for retirement income. Other states treat your 401(k) withdrawal just like any other income, which can result in a hefty state tax bill on top of federal taxes.

For example, if you live in Florida, Texas, or Nevada (states with no state income tax), every dollar of your 401(k) RMD goes in your pocket after federal taxes—no extra state cut. Similarly, a few states like Illinois, Pennsylvania, and Mississippi specifically exempt most retirement income (including 401(k) withdrawals) from taxation, which can feel like a tax haven for retirees.

On the other hand, if you’re in a state like California or New York, your 401(k) withdrawals will be subject to state income tax at the normal rates. Those rates can be high, meaning your mandatory withdrawal could push you into paying 8–13% or more to the state in addition to what the IRS takes.

Many states fall somewhere in between. Some offer partial exclusions or credits for retirement income—like a deduction on a certain amount of pension or IRA withdrawals each year once you’re above a certain age. For instance, Georgia allows seniors to exclude a chunk of retirement income from state taxes, and New York exempts up to $20,000 of qualified retirement income for residents above a certain age. Many other states have their own tweaks and deductions.

It pays to learn your own state’s rules: you might discover that relocating in retirement (or timing when you claim residency) could save you significant tax on your RMDs.

Keep in mind, no state can change the federal requirement to take the RMD, but they do control how much of it you get to keep. If you’re lucky enough to live in a tax-friendly state, your age-72 withdrawal might not cost you a dime in state tax.

If you live in a high-tax state, be prepared that your required withdrawals will have an extra line on your tax return. Tax planning becomes even more important in the latter case—nobody likes an unpleasant surprise at tax time 😬.

Common Mistakes: 5 Costly RMD Blunders (and How to Avoid Them) 😱

• Forgetting the first RMD deadline: Many people miss their very first required withdrawal. They either don’t realize it’s due by April 1 of the following year or they procrastinate until it’s too late. This mistake can trigger nasty IRS penalties, so mark your calendar and plan ahead.

• Assuming you’re exempt when you’re not: Some think if they’re still working or don’t need the money, they can skip the RMD. Unless you qualify for the specific still-working exception (and note: that exception doesn’t apply to IRAs at all), you must take the distribution. Never assume you’re off the hook without checking the rules carefully.

• Not taking RMDs from every account: If you have multiple 401(k)s from past jobs, each one has its own RMD. A common error is forgetting an old account or thinking you can take the total RMD from just one 401(k). (You can’t with 401(k)s—each plan’s RMD must be withdrawn separately.) Failing to pull from each account can leave you accidentally short and facing a penalty.

• Confusing Roth rules: People often mix up Roth IRAs and Roth 401(k)s. Remember, Roth IRAs have no RMDs for the original owner, but Roth 401(k)s historically did require RMDs at 72. If you left a Roth 401(k) at a former employer, you might forget to take that RMD – a mistake (though starting in 2024 Roth 401(k)s no longer require withdrawals). Always double-check which accounts require distributions.

• Misjudging the amount or timing: Another blunder is miscalculating how much to withdraw or trying to apply one year’s withdrawal to the next. Taking out more than required in one year doesn’t let you skip the next year—each year’s RMD is separate. Also, not accounting for the correct year-end balance or using outdated life expectancy tables can lead to a shortfall. The fix: use the official IRS worksheet or a reliable calculator each year to get it right.

Key Terms Demystified: RMDs, IRAs, Roth Conversions, SECURE Act & More 🔑

• Required Minimum Distribution (RMD): The minimum amount the IRS forces you to withdraw from certain retirement accounts each year once you reach a specified age. It’s “required” because you have no choice if you want to avoid penalties, and it’s “minimum” because you can always take more, but you can’t take less than the calculated amount.

• Individual Retirement Account (IRA): A tax-advantaged retirement account you can set up outside of an employer plan. Traditional IRAs are similar to 401(k)s in that they have RMDs at the required age and withdrawals are taxed as income. By contrast, Roth IRAs have no RMDs during the original owner’s lifetime.

• Roth Conversion: A strategy where you take money from a pre-tax account (like a traditional 401(k) or IRA) and “convert” it to a Roth IRA by paying the tax now. People do this to reduce future RMDs, since money in a Roth IRA won’t be subject to mandatory withdrawals. Roth conversions can be done on portions of your account, often in years when your income (and tax bracket) is lower.

• SECURE Act: The Setting Every Community Up for Retirement Enhancement (SECURE) Act is a recent federal law (enacted in 2019, with a sequel in 2022) that made major changes to retirement rules. Notably, it raised the starting age for RMDs (first to 72, then further to 73 and beyond in the 2.0 version) and adjusted other rules like inherited account distributions and penalties. If you’re wondering why the RMD age shifted, it’s because of the SECURE Act changes.

• IRS Regulations: These are the detailed rules issued by the Internal Revenue Service to implement the laws passed by Congress. In the context of RMDs, IRS regulations and guidance explain how to calculate your RMD, what life expectancy tables to use, how exceptions work, and how to report distributions. Essentially, they fill in the fine print—like specifying that factor of 27.4 at age 72, or outlining the process to request a penalty waiver if you missed an RMD.

Real-Life Examples: Navigating 401(k) Withdrawals in Different Situations 💡

Example 1 – Retiree taking first RMD: John turned 72 this year and is already retired. He has a large 401(k) balance. John learns he must take his first RMD by April 1 of next year, but if he waits that long, he’ll also have to take a second RMD by December 31 of next year. To avoid doubling up his taxable income in one year, John decides to take his first withdrawal in the calendar year he turns 72 instead of delaying – spreading out his income and potentially saving on taxes.

Example 2 – Still working at 72: Maria is 72 and still employed full-time at the company where she’s worked for 30 years (and she owns 0% of it). Because of the still-working exception, she can delay taking RMDs from her current employer’s 401(k) until she retires. However, Maria also has a traditional IRA from earlier in her career – that IRA is not covered by the exception, so she must start RMDs from the IRA at 72. In other words, Maria skips RMDs on her work 401(k) for now, but she dutifully takes them from her IRA to stay compliant.

Example 3 – Using Roth conversions to reduce RMDs: David, age 70, sees that his 401(k)/IRA balance is quite high and worries about huge RMDs at 72 bumping him into a higher tax bracket. He decides to execute partial Roth conversions at ages 70 and 71, moving some money each year from his IRA to a Roth IRA and paying taxes on those conversions. By the time David is 72, his remaining traditional IRA balance is lower – which means his RMD is smaller. The result: he meets his mandatory withdrawal with a lesser tax hit, and any money he converted is growing in a Roth IRA with no future RMDs required.

Example 4 – Missed RMD and penalty fix: Susan turned 72 last year and, amid health issues, completely forgot to take her first RMD. The missed RMD was $5,000, which she only realized at tax time. Susan quickly took the $5,000 distribution as soon as she discovered the error. She then filed IRS Form 5329 with her tax return to explain the mistake (due to medical issues, now corrected), and the IRS waived the penalty — a relief that prompted her to set reminders for future years.

Evidence & Trends: Why RMD Rules Exist and How They’ve Changed 📊

Required withdrawals have been part of U.S. tax law for decades. The government established RMD rules to ensure retirees eventually pay taxes on their pre-tax retirement savings. Without RMDs, someone could theoretically defer taxes indefinitely, passing on their 401(k) untouched as an inheritance.

To prevent that, Congress set an age by which you must start drawing down those accounts, forcing the money out of tax-deferred status and into taxable circulation (so it’s actually used for retirement rather than hoarded tax-free forever).

Originally, the RMD age was 70½ (a somewhat odd leftover from when the rules were first written). For years, that didn’t change. The penalty for non-compliance was set extremely high (50%) to make sure almost no one would dare skip their withdrawal. This draconian penalty itself is evidence of how serious the IRS is about RMD enforcement: if few people ever incurred it, that’s by design—it exists to scare people into compliance, and largely, it worked.

As life expectancy increased and more seniors kept working later in life, policymakers recognized that the old rules might need updating. By 2019, Congress passed the SECURE Act, citing the fact that people were living and working longer as justification for raising the RMD age to 72.

They effectively acknowledged that age 70½ was a relic of a past era. The later bump to age 73 (and eventually 75) in SECURE 2.0 continues this trend, backed by data showing longer lifespans and a desire to let retirees keep funds invested a bit longer.

Evidence also shows that many retirees don’t touch their 401(k) savings until forced to. Industry studies have found that a majority of retirees withdraw only the RMD amount each year once they hit the required age, rather than taking out extra. In some analyses, over two-thirds of retirees at RMD age took no more than the minimum required. This suggests that RMD rules often determine retirement income withdrawals: people plan around that minimum, especially if they have other income sources or don’t need the money immediately.

There have been rare moments when the government suspended RMDs entirely—another piece of evidence of the flexibility and impact of these rules. For instance, in 2009 after a market crash, and again in 2020 during the COVID-19 crisis, Congress temporarily waived all RMD requirements for that year.

Lawmakers did this to avoid forcing retirees to sell investments in a down market just to meet the RMD. It was an acknowledgment that extraordinary conditions warranted a pause, underscoring that RMDs are a policy tool that can be adjusted in response to economic events.

Trends in legislation also show a tightening around inherited retirement accounts. The SECURE Act ended the so-called “stretch IRA” for most beneficiaries, replacing it with a 10-year rule for draining inherited accounts. This means your heirs generally can’t stretch out withdrawals over their lifetime any more—they must withdraw those funds (and pay taxes) within a decade. That change aligns with the spirit of RMDs: accelerating the payout (and taxation) of retirement money once the original owner is gone.

One beneficial workaround for RMDs involves charity. Tax laws allow those 70½ or older to make a Qualified Charitable Distribution (QCD) from their IRA—directly donating up to $100,000 per year to a charity. Such QCDs count toward your RMD but are not included in your taxable income.

In effect, it lets charitably inclined retirees satisfy the RMD requirement while avoiding the tax hit (and helping a good cause). QCDs have become a popular planning strategy since Congress made them a permanent option, showing how RMD rules have evolved to offer more flexibility.

Traditional vs. Roth 401(k): Does the Age-72 Rule Apply to Both? 🔄

Traditional 401(k)s and Roth 401(k)s aren’t identical when it comes to mandatory withdrawals. Traditional 401(k)s are funded with pre-tax money, so the IRS absolutely wants distributions to start at age 72 (or 73 under the new updates) to collect taxes. Roth 401(k)s, on the other hand, are funded with after-tax dollars, and their withdrawals are tax-free. Historically, however, Roth 401(k)s were still subject to RMD rules at age 72 under the old law, surprising many people that even tax-free Roth money had a mandated withdrawal age.

For years, savvy retirees got around the Roth 401(k) RMD by rolling their Roth 401(k) balances into Roth IRAs before reaching RMD age (since Roth IRAs have no required distributions for the owner). Now, thanks to recent law changes, that maneuver isn’t necessary.

Starting in 2024, Roth 401(k)s no longer require distributions at any age during the original owner’s life, aligning with the Roth IRA rules. In short, traditional 401(k) owners still face mandatory, taxable withdrawals at age 72+, whereas Roth 401(k) owners can ignore RMDs altogether—any withdrawals from their Roth are completely optional (and tax-free).

Pros & Cons: Should You Delay 401(k) Withdrawals or Take Them Early? 🤔

If you have the choice, is it better to hold off on taking money from your 401(k) until RMD age, or start earlier? It’s a crucial question with no one-size-fits-all answer. Here’s a side-by-side look at the advantages and disadvantages of delaying versus taking withdrawals sooner:

Court Case Rulings: What the Courts Say About Mandatory 401(k) Withdrawals ⚖️

It might surprise you, but there haven’t been headline-making court battles over the legitimacy of RMD rules. The law requiring 401(k) withdrawals by a certain age is well-established in the tax code, and courts have consistently treated it as settled. In other words, no one has successfully challenged the idea that the government can make you withdraw your retirement money at a certain age. Congress has clear authority to impose these rules, and the regulations are quite explicit—so there’s not much for a court to debate on that front.

Where court cases do pop up is usually around the penalties for failing to take an RMD. For example, a taxpayer who missed a withdrawal might petition the Tax Court arguing they had reasonable cause (say a severe illness or bad professional advice) and shouldn’t owe the penalty. Courts consider whether the mistake was an honest error and if it was corrected promptly; if so, the IRS (or the Tax Court, if it gets that far) can waive the hefty penalty. In practice, most RMD penalty problems are resolved by simply requesting a waiver from the IRS (filing Form 5329 with an explanation, as Susan did) rather than through any court showdown.

Overall, the precedent is that judges uphold the RMD rules and associated penalties unless there’s a compelling reason not to. There’s no loophole to get out of RMDs entirely through the courts—if you simply don’t like the rule, that won’t fly as a defense. However, courts (and the IRS) do show leniency for reasonable mistakes. The key takeaway from the legal side is simple: follow the RMD rules, but if you slip up due to something beyond your control, the system provides a mechanism to ask for forgiveness.

FAQs: Quick Answers to Common Questions ❓

Q: Do I have to take 401(k) withdrawals at 72 if I’m still working?
A: No. If you’re still employed at 72 and own less than 5% of the company, you can postpone RMDs from that employer’s 401(k) until you retire.

Q: Did the RMD starting age change from 72 to 73?
A: Yes. The SECURE 2.0 Act raised the beginning RMD age to 73 starting in 2023 (and it will rise to 75 for people born in 1960 or later).

Q: Are Roth 401(k) withdrawals mandatory at age 72?
A: No. As of 2024, Roth 401(k)s no longer have required withdrawals during the original owner’s lifetime. (Before 2024 they did, but the new law removed that obligation.)

Q: Do I have to take RMDs from my Roth IRA at 72?
A: No. Roth IRAs are exempt from RMD rules while the original owner is alive, regardless of age.

Q: Will I get penalized if I miss an RMD deadline?
A: Yes. The IRS penalty is 25% of the amount you should have withdrawn (reduced to 10% if you promptly make up the RMD and report the error).

Q: Can I withdraw more than the required minimum from my 401(k)?
A: Yes. You can take out more than the minimum if you want. Just know that extra withdrawals don’t count toward any future year’s RMD—you can’t “pre-pay” future RMD obligations.

Q: I have multiple 401(k) accounts; can I take my total RMD from just one?
A: No. Each 401(k) must satisfy its own required minimum distribution. You cannot combine 401(k) RMDs into one withdrawal (aggregation is only allowed with multiple IRAs, not 401(k)s).

Q: Can I avoid RMDs by converting my 401(k) to a Roth IRA?
A: Yes. If you roll over or convert your traditional 401(k) into a Roth IRA, those funds won’t have RMDs going forward (you’ll pay taxes on the conversion, but then no mandatory withdrawals).

Q: Will my beneficiaries have to take withdrawals from my 401(k) after I die?
A: Yes. Inherited retirement accounts are subject to their own distribution rules (typically a 10-year withdrawal rule for most non-spouse beneficiaries under current law). Your heirs can’t avoid taking out the money.

Q: Can I convert my required minimum distribution to a Roth IRA instead?
A: No. You cannot convert an RMD to a Roth. The RMD amount must be withdrawn and taxed—only any additional funds (beyond that year’s RMD) can be converted to a Roth IRA.

Q: Can I delay my first RMD until the next year?
A: Yes. You can delay your very first RMD until April 1 of the year after you hit your RMD age. Just remember that means you’ll have two RMDs due in that same year.