The IRS has updated its minimum required distribution (RMD) rules. 3 things everyone needs to know.

The federal government encourages retirement savings by providing tax benefits to anyone who contributes to certain retirement accounts, such as a 401(k) or IRA. If you save money in a traditional tax-deferred retirement account, you can deduct the amount you put in on your tax return this year. That gives you more money to invest now.

But ultimately, Uncle Sam wants to earn his income. He can’t postpone taxes forever because the government imposes mandatory minimum distributions. Seniors must begin withdrawing money from tax-deferred retirement accounts in their 70s, and some inherited IRAs may also be subject to RMDs. And every time he withdraws from one of those accounts, he must pay taxes that he deferred for years.

The penalties for missing required distributions can be very severe. If you don’t withdraw on time, you could owe up to 25% of the amount you were supposed to withdraw. And you still have to make the withdrawal and pay taxes on it.

Recent legislation has changed the required minimum distribution rules several times, and the IRS provided finalized regulations in July on how to implement the updated laws, clarifying some key points. Here are three things everyone should know.

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1. You must continue to make RMDs on inherited IRAs.

If you inherit an IRA from a deceased person after December 31, 2019, you may be subject to an RMD on that account.

The SECURE Act changed the rules for inherited IRAs. Instead of allowing withdrawals to be made throughout life, you now have only 10 years to deplete your newly inherited IRA. There are exceptions for spouses, minor children, beneficiaries who are less than 10 years younger than the IRA owner, and beneficiaries who are disabled or have a chronic illness.

It was unclear whether an inheritor of an IRA subject to the 10-year rule would have to take RMDs in years 1 through 9. The IRS has waived the requirement for 2021 through 2024, but has said it will require RMDs for inherited IRAs starting in 2025. An inheritor of an IRA from an owner who was already taking RMDs must continue to take annual distributions.

While the RMD rule is not retroactive, the 10-year rule still applies to anyone who inherits an IRA in 2020 or later. That means some beneficiaries will have to take minimum distributions between 2025 and 2029 and then exhaust the entire inherited account by 2030.

Since the beneficiary must exhaust the account within 10 years, it often makes sense to withdraw some money each year to reduce the overall tax burden. However, IRS regulations reduce the flexibility that the beneficiary previously had.

2. Elderly beneficiaries may receive fewer RMDs.

If you inherited an IRA from someone younger than you and have already started taking RMDs, you should continue taking RMDs from the new IRA you inherited. This could add tax to your estate, since you are more likely to take RMDs from your own account.

New IRS rules provide some relief to elderly beneficiaries: Instead of taking an RMD based on their own life expectancy, they can take an RMD based on the original owner’s life expectancy, which would result in a smaller distribution from the inherited account.

Also, since you are older than the original owner, you are not subject to the 10-year rule mentioned above. Therefore, you can maintain the minimum withdrawal amount required for life. However, you will likely pass on the tax burden to your beneficiaries, who may be subject to higher RMDs and the 10-year rule.

3. Those born in 1959 should plan to start taking RMDs starting at age 73.

The Secure 2.0 Act raises the RMD age from 72 to 73 starting in 2023, and then to 75 in 2033. But this creates an interesting problem for anyone born in 1959. Since they’ll be 73 in 2032, they’ll have to take their first RMD by April 2033. But that would make them 74 in 2033, which is below the RMD age. So does that mean a 1959 baby would have to start taking RMDs at age 73 or 75?

The IRS has proposed regulations to clarify the repeal of the Secure 2.0 Act, which would make the required minimum distribution age 73. The table below shows the RMD age based on your year of birth if the proposed regulations were to take effect.

Data source: IRS.

Keep in mind that you can delay your first required minimum distribution until April 1 of the following year. That means your next distribution must be made by December 31 of that year, so delaying your first RMD results in two distributions in one year. It often makes sense to take your first distribution in the year you reach RMD age to reduce your overall tax liability.