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Avoiding RMD Pitfalls: A CPA’s Guide to Compliance and Tax Efficiency

RMD Ages and Rules: Recent legislative and regulatory changes shifted the age at which individuals must begin taking RMDs. The SECURE Act (2019) raised the RMD starting age from 70½ to 72. Subsequently, SECURE 2.0 (2022) further increased the starting age to 73 for individuals born between 1951-1959 and 75 for those born in 1960 or later.

CPAs should review clients’ birth years carefully to determine the correct starting age. For IRAs and for 5% owners of an employer plan sponsor, the first RMD is due by April 1 of the year after reaching the applicable age. Employer plans may provide that the required beginning date for non-5% owners is April 1 of the year after the later of retirement or reaching the applicable age.

Calculating the RMD: The RMD amount is generally determined by dividing the prior-year-end account balance by the IRS life expectancy factor, which can be found in Treas. Reg. §1.401(a)(9)-9 (reproduced in IRS Publication 590-B). CPAs should ensure that RMDs for individuals with multiple IRAs are aggregated appropriately, keeping in mind that RMDs from employer plans (e.g., 401(k) plans) must be taken separately from IRA RMDs. CPAs should also advise clients that the penalty for missing an RMD is 25% of the missed distribution, though a penalty reduction may be available in some cases. To fix a missed RMD, participants should first take missed RMDs as soon as possible after discovering the error, then file IRS Form 5329 for each year the RMD was missed.

Key Takeaways: Given the ongoing changes to retirement policies and legislation, CPAs should remain knowledgeable and up to date on SECURE 2.0 and IRS updates, review RMD schedules during annual tax planning meetings, and coordinate with clients to ensure distributions are executed efficiently. These proactive steps on your end can help clients avoid costly penalties, minimize tax burdens, and align their retirement income strategies with broader financial goals.

Jesse St. Cyr, Partner, Poyner Spruill

Jesse is a member of the Employee Benefits and Executive Compensation team at Poyner Spruill LLP. He represents clients before the IRS and DOL in matters involving employee benefits. Jesse has experience working with a diverse range of benefits and compensation matters and has extensive experience working with a variety of employers. Jesse is recognized by Chambers USA as a leading lawyer for Business (Employee Benefits & Executive Compensation).