If you’re nearing retirement or already managing retirement accounts, understanding Required Minimum Distributions (RMDs) in 2025 is essential. These mandatory withdrawals can impact your tax bill and retirement strategy, so getting them right can save you money and stress.
The rules surrounding RMDs have evolved with new legislation, including the SECURE 2.0 Act of 2022. Missing deadlines or miscalculating your RMD could result in hefty penalties. In this guide, we’ll break down everything you need to know about RMD rules for 2025, avoiding common mistakes, and strategic ways to minimize your tax burden.
RMDs in 2025
| Topic | Details |
|---|---|
| RMD Age Requirement | Raised to 73 (starting age for RMDs) |
| Penalty for Missed RMDs | Reduced from 50% to 25%; further lowered to 10% if corrected within two years |
| New Roth 401(k) Rule | No RMDs for Roth 401(k)s from 2024 onward |
| Qualified Charitable Distributions (QCDs) | Allows up to $100,000 in tax-free charitable donations from IRAs |
| Roth IRA RMDs | Still not required for original owners |
| New Spousal RMD Rules | Spouses inheriting an IRA can elect to be treated as the deceased account holder |
| Official IRS RMD Page | IRS Website |
Understanding RMDs in 2025 is crucial for avoiding penalties and managing your tax liability. With new age requirements, penalties, and tax-saving strategies, being proactive can help you maximize your retirement savings. Consider working with a financial professional to optimize your withdrawals and minimize taxes.
Understanding RMDs in 2025
What is an RMD?
An RMD (Required Minimum Distribution) is the minimum amount you must withdraw annually from your retirement accounts after reaching a certain age. This rule ensures that the IRS collects taxes on tax-deferred savings in traditional IRAs, 401(k)s, 403(b)s, and similar accounts.
Who Needs to Take RMDs?
If you have a tax-deferred retirement account and are 73 or older in 2025, you must take an RMD. However, if you turn 75 in 2033 or later, your RMDs won’t start until then.
Accounts Subject to RMDs:
- Traditional IRAs
- SEP IRAs and SIMPLE IRAs
- 401(k) and 403(b) plans
- Employer-sponsored retirement plans
Accounts NOT Subject to RMDs:
- Roth IRAs (during the account holder’s lifetime)
- Roth 401(k)s (starting 2024, thanks to SECURE 2.0)
How to Calculate Your RMD
Your RMD is calculated using the IRS Uniform Lifetime Table, which divides your retirement account balance by a factor based on your life expectancy.
Example Calculation:
- Account balance on December 31, 2024: $500,000
- IRS divisor for age 73: 26.5
- RMD = $500,000 ÷ 26.5 = $18,868
You must withdraw this amount by December 31, 2025, or face penalties.
Avoiding Costly Mistakes
1. Missing the RMD Deadline
- New penalty: 25% of the missed RMD (reduced to 10% if corrected within two years).
- Solution: Set up automatic withdrawals with your financial institution.
2. Taking the Wrong Amount
- Miscalculating your RMD could result in underpayment penalties.
- Solution: Use an RMD calculator or consult a financial advisor.
3. Forgetting About Multiple Accounts
- If you have multiple retirement accounts, you may need to take separate RMDs.
- Solution: Consolidate accounts or ensure each RMD is withdrawn correctly.
4. Assuming Roth IRAs Have RMDs
- Solution: Roth IRAs do not have RMDs, but inherited Roth IRAs do under certain conditions.
5. Not Understanding New Spousal RMD Rules
- Solution: If you inherit an IRA from your spouse, you can elect to be treated as the deceased account holder, which may allow for better tax advantages.
6. Delaying RMDs Without Planning for Tax Consequences
- If you delay your first RMD to April 1, 2026, you may face double RMDs in one tax year.
- Solution: Consider taking your first RMD before December 31, 2025, to avoid a tax spike.
Strategic Ways to Reduce RMD Taxes
1. Qualified Charitable Distributions (QCDs)
- Donate up to $100,000 tax-free from your IRA to a charity.
- Reduces your taxable income without affecting your standard deduction.
2. Roth Conversions
- Convert part of your traditional IRA to a Roth IRA to reduce future RMD amounts.
- Pay taxes now at a lower rate to avoid higher taxes later.
3. Withdraw More in Low-Tax Years
- Take voluntary withdrawals before RMDs begin to spread out your tax liability.
4. Consider a QLAC (Qualified Longevity Annuity Contract)
- A QLAC allows you to defer RMDs until age 85, reducing required withdrawals now.
FAQs On RMDs in 2025
1. What happens if I miss my RMD?
If you fail to take an RMD, the penalty is 25% of the missed amount (reduced to 10% if corrected within two years).
2. Can I withdraw more than the required minimum?
Yes! You can withdraw more, but only the required amount is mandatory.
3. Do Roth IRAs have RMDs?
No, Roth IRAs do not require RMDs during the original account holder’s lifetime.
4. Can I donate my RMD to charity?
Yes! Through Qualified Charitable Distributions (QCDs), you can donate up to $100,000 tax-free.
5. What are the new spousal RMD rules?
Spouses inheriting an IRA can elect to be treated as the deceased account holder, allowing for more favorable distribution rules.
