Final answer:
The holder of a traditional IRA faced a 50% excise tax penalty for not taking the required minimum distribution by age 70 1/2; however, the SECURE Act raised this age to 72 for individuals turning 70 1/2 after December 31, 2019.
Step-by-step explanation:
The penalty for the holder of a traditional IRA who hasn't started withdrawing money by age 70 1/2 is a 50% excise tax on the amount that should have been distributed. This is known as the Required Minimum Distribution (RMD). However, it's important to note that changes under the SECURE Act, which was signed into law in December 2019, have updated this age to 72 for those who turn 70 1/2 after December 31, 2019. Before the SECURE Act, the penalty was levied for missing the RMD by age 70 1/2. This rule applies to traditional IRAs, which are individual retirement accounts that allow tax-deferred growth with taxes due upon withdrawal. Unlike traditional IRAs, Roth IRAs do not require withdrawals at a certain age and allow tax-free growth.