The 2026 RMD Rules and the Inheritance Trap Inside Your 401(k)

Your traditional 401(k) is part yours and part tax bill

The 2026 RMD rules make a lot more sense once you see what a required minimum distribution actually is. It's a bill. Every dollar sitting in your traditional 401(k) or traditional IRA has never been taxed. It wasn't taxed going in, and the growth was sheltered the whole way up. The IRS let that money compound for years without taking a cut, and it still intends to get paid. The required minimum distribution is how it starts collecting, on its schedule instead of yours.

Which accounts, and at what age

This applies to traditional 401(k)s and traditional IRAs. It does not apply to a Roth 401(k) as of 2024, a Roth IRA, or an HSA. The Roth 401(k) change is a big one. The old rule forced distributions out of an account that was already tax-free, and it got repealed. If you have money sitting in an old employer's Roth 401(k), you're free to move it.

Your start age goes by the year you were born. Born 1950 through 1959, distributions start at age 73. Born 1960 or later, they start at age 75. The switch happens in 2033. So if you were born in 1960 and you turn 73 that year, your distributions don't start then. They get pushed back two years and begin at 75. It goes on birth year.

You can delay that very first distribution until April 1 of the year after you turn 73 or 75. That sounds generous. It usually costs more. The second distribution is still due December 31 of that same year, so you take two in one tax year instead of spreading them across two, and that often lands you in a higher bracket. Taking the first one on time is usually cheaper.

Skip a distribution entirely and the penalty is 25% of what you failed to take. It used to be 50%, so this is an improvement, and it still stings. Catch the mistake within two years of when the distribution should have happened, file Form 5329, and the penalty drops to 10%. A missed distribution is something to find and fix fast.

How the number gets calculated

The calculation starts with your account balance on December 31 of the previous year. You divide that balance by a factor from the IRS uniform lifetime table based on your age.

Say you had exactly $1 million in a traditional IRA on December 31 of last year. This year you turn 73 and distributions begin. The factor at 73 is 26.5, so $1 million divided by 26.5 comes to $37,700. That's what has to come out this year, about 3.77% of the balance.

That percentage climbs as you age, because the factor keeps dropping. On that same $1 million, age 75 puts you closer to $40,000. Age 80 is around $49,500. By 85 you're taking $62,500, about 6.25%. All of it counts as ordinary income, stacked on top of everything else you're already bringing in. That can move you into a higher tax bracket, make more of your Social Security taxable, and trigger IRMAA surcharges on your Medicare. One forced withdrawal can change three other tax bills at the same time.

The window before distributions start

The expensive situation is a large tax-deferred balance you haven't touched. By the time you reach 73 or 75, the good moves are mostly behind you. The stretch that matters is after you stop working and before distributions start. It can run five, ten, even fifteen years. Those are usually the lowest-earning years of your adult life, which makes them the cheapest years to pull money out.

The simplest move is to withdraw from the 401(k) during those low-income years. Put it in savings, move it into a normal brokerage account, or spend it.

The second move is a Roth conversion. Instead of just withdrawing, you convert the money from the traditional account into a Roth. Once it's there it's tax-free, you never pay tax on it again, and required minimum distributions don't apply to it. One note: you can convert your own accounts, and you can't convert an inherited one.

The third is for anyone charitably inclined. Starting at age 70½, a few years before distributions kick in, you can send money straight from your IRA to a charity. It's called a qualified charitable distribution, and in 2026 you can give up to $111,000 this way. It counts toward your required distribution once you're in your RMD years, and it never shows up in your taxable income. If you're already giving to a church or a charity, doing it out of the IRA instead of out of your pocket is one of the most tax-efficient moves there is.

What happens when your kids inherit it

For a spouse it's straightforward. They inherit the IRA and roll it into their own, which is usually the right move because it keeps the conversion options open.

For anyone else, the rules have changed and they're being enforced. Most adult children have to empty the account within 10 years of inheriting it. If you had already started taking required distributions before you died, they also have to take a distribution every year along the way. Stretching an inherited IRA across a young heir's lifetime is mostly gone, outside a narrow set of cases like a surviving spouse, a minor child, or someone disabled or chronically ill. The IRS waived penalties on those inherited distributions for a few years. That window has passed, and as of 2025 the rules are enforced.

The house feels complicated. The number on the 401(k) statement feels like the clean, simple thing to hand down, so the plan becomes leave them the IRA and hold on to everything else. That instinct is backwards. When you die, appreciated real estate and regular brokerage accounts pass with a step-up in basis, and the gain built up over your lifetime gets wiped clean. Your heirs could sell the house the day after you die and owe nothing on it.

A traditional IRA gets no step-up at all. Every dollar they inherit is taxed as ordinary income, and they have to drain the account inside 10 years. For a working adult in their 40s or 50s, those 10 years usually land in the highest-earning, highest-taxed years of their life. The large tax-deferred account is the worst asset to die holding, and real estate is one of the best. The plan that feels safest is the one that hands the IRS the biggest check.

That's why a Roth conversion works as an estate move as much as a tax move. Pay the tax now at your rate, and your kids inherit money they can pull out tax-free instead of money that gets taxed in their peak earning years.

Alan's numbers

A viewer named Alan left his situation in a comment. He's not retired yet. He has $1.8 million between his 401(k) and IRA, and close to $4 million in real estate equity, including $1 million in his primary residence. The real estate throws off a lot of income and he doesn't want to pay all that tax on it, so his plan is to leave it to the kids and let them take the step-up. Even with all of that, he said he still worries.

Alan has the real estate part right. He can hand the kids those properties, the gains reset, and a lifetime of appreciation disappears for tax purposes. The $1.8 million in the 401(k) and IRA is the piece that gets no step-up. That's the future tax bill, for him while he's alive and for his kids on a 10-year clock after he's gone.