Retirees Face 25% Penalty If This Requirement Isn’t Met by April 1st: If you’re approaching retirement or have recently crossed into your golden years, there’s one IRS rule you simply can’t afford to ignore: Required Minimum Distributions (RMDs). Retirees who turned 73 in 2024 must take their first RMD by April 1, 2025—or face a steep 25% tax penalty on the amount not withdrawn. This IRS requirement often catches people off guard, but understanding it now can save you thousands later. In this article, we’ll break down what RMDs are, who they affect, how to avoid penalties, and what steps you need to take right away.
Retirees Face 25% Penalty If This Requirement Isn’t Met by April 1st
RMDs aren’t just another retirement formality—they’re a critical financial requirement with serious consequences if overlooked. If you turned 73 in 2024, mark your calendar for April 1, 2025, and start planning today. With the right strategies, you can satisfy the IRS rules, avoid penalties, and manage your tax burden in retirement.
| Topic | Details |
|---|---|
| What is an RMD? | The minimum amount retirees must withdraw annually from certain tax-deferred retirement accounts. |
| Who is affected? | Individuals who turned 73 in 2024. |
| First deadline | April 1, 2025 (for first RMD only). |
| Ongoing deadlines | December 31 every year after the first RMD. |
| Penalty for missing | 25% of the RMD amount not withdrawn. Can be reduced to 10% if corrected within 2 years. |
| Accounts subject to RMDs | Traditional IRAs, 401(k)s, 403(b)s, SEP IRAs, SIMPLE IRAs. |
| Not subject to RMDs | Roth IRAs (during owner’s lifetime). |
| Calculation method | Account balance on December 31 of the previous year ÷ IRS life expectancy factor. |
| Official IRS resource | IRS RMD FAQs |
What Are Required Minimum Distributions (RMDs)?
Required Minimum Distributions (RMDs) are the minimum amounts that must be withdrawn annually from most tax-deferred retirement accounts starting at age 73. This rule is the government’s way of ensuring it eventually collects taxes on money that’s been growing tax-deferred for years.
These distributions are taxable as ordinary income, and the IRS doesn’t allow you to skip or delay them without consequence.
Important: Roth IRAs are exempt from RMDs during the original account holder’s lifetime, offering a significant tax advantage for estate planning.
Who Is Required to Take RMDs?
If you turned 73 in 2024, you must take your first RMD by April 1, 2025. If you delay your first RMD until April 1, remember that your second RMD is still due by December 31, 2025, meaning two withdrawals in one year—which could increase your tax bill.
The following account types are subject to RMDs:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- 457(b) plans
- Other employer-sponsored retirement plans
How Are RMDs Calculated?
RMDs are calculated using this basic formula:
Account Balance (as of December 31 of previous year) ÷ IRS Life Expectancy Factor
The IRS provides a Uniform Lifetime Table to determine your life expectancy factor. For most retirees, it starts at 26.5 at age 73.
Example: If you had $400,000 in a traditional IRA at year-end, your RMD at age 73 would be:
$400,000 ÷ 26.5 = $15,094
Retirees Face 25% Penalty For Missing Your RMD
Missing an RMD deadline is one of the costliest mistakes a retiree can make. If you fail to withdraw the full amount by the deadline, the IRS imposes a 25% excise tax on the amount not taken. However, if the error is corrected within two years, the penalty may be reduced to 10%.
How to Correct a Missed RMD:
- Withdraw the missed amount immediately
- File IRS Form 5329
- Attach a letter of explanation, requesting a penalty waiver and describing the reasonable cause for the oversight
Always consult a financial or tax advisor before filing for a waiver.
Steps to Avoid RMD Penalties
Following these steps can help you stay on top of your RMDs:
1. Set Calendar Reminders
Add RMD deadlines to your calendar each year: April 1 (first year only) and December 31 every year thereafter.
2. Automate Withdrawals
Most brokerage firms allow you to schedule automatic RMDs. This ensures you never miss a deadline.
3. Work With a Financial Advisor
An advisor can help you calculate your RMDs across multiple accounts, manage tax implications, and create a withdrawal strategy that works with your retirement goals.
4. Consolidate Accounts
Having multiple IRAs or 401(k)s can complicate RMD calculations. Consolidating accounts makes management easier and reduces the risk of missteps.
Additional Tax Considerations
RMDs count as taxable income, which may:
- Push you into a higher tax bracket
- Increase Medicare premiums (via IRMAA surcharges)
- Affect taxation of Social Security benefits
Consider working with a CPA or tax planner to time your withdrawals and reduce tax liability. One smart strategy is converting some IRA funds to a Roth IRA before RMDs begin. This move allows for future tax-free withdrawals and no RMDs.
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Frequently Asked Questions (FAQs)
Q: Can I withdraw more than my RMD?
Yes. You can always withdraw more than your RMD, but excess withdrawals don’t carry over to future years.
Q: Do RMDs apply to inherited accounts?
Yes. Beneficiaries of inherited IRAs or 401(k)s typically must follow different RMD rules, depending on the relationship to the deceased and the year of death. The 10-Year Rule applies to many beneficiaries.
Q: What if I’m still working at 73?
If you’re still working and don’t own more than 5% of the company, you may be able to delay RMDs from your current employer’s plan—but not from IRAs.
Q: Are RMDs required from Roth 401(k)s?
Yes, but beginning in 2024, Roth 401(k)s are no longer subject to RMDs, aligning with Roth IRAs. This is thanks to provisions in the SECURE Act 2.0.
