If you’re over 73 and haven’t thought about RMDs yet this year, here are some reminders to help you hold on to more of your money.
Sweater weather is around the corner, but for now we’re still enduring the heat and humidity of summer. At least we still have almost half the year to meet fitness goals, declutter the house, and, of course, withdraw Required Minimum Distributions (RMDs) from retirement accounts. The deadline is December 31, the end of the tax year.
The stressful thing about RMDs is that they are, as the name suggests, required by the IRS, and thus there’s a penalty for withdrawing less than the minimum. The penalty rate is 25% of what you failed to withdraw by the deadline. As an example, if your RMD is $50,000, and you only withdrew $25,000, you would owe 25% of the remaining $25,000, or $6,250.
Handing back money you’ve carefully invested over the course of a lifetime? Let’s not even go there. It may make sense to delay taking the full distribution until near the end of the year, but keep an eye on the calendar: the most important rule of thumb for managing RMDs is to never wind up paying that 25% penalty. Here are 5 RMD reminders for 2025 to help you stay well ahead of the December 31st deadline.
1. Turning 73? This is your year. In general, your first RMD must be withdrawn before April 1 of the year after you turn 73. (For those born in 1960 or later, the age of first RMD will bump up to 75.) However, be aware that while you could take both your first and second RMDs in the same year, that income may push you into a higher tax bracket. Delaying usually only makes sense for people who are still bringing in a hefty paycheck.
2. Your RMD changes every year. To calculate your current year’s RMD, divide the account balance as of December 31 of the previous year by a life expectancy factor provided by the IRS (access the most recent tables here. For example, if you are 74 years old with a traditional IRA balance of $200,000 at the end of the prior year, and the IRS life expectancy factor for your age is 25.5, your RMD would be $200,000 divided by 25.5, or $7,843.14. This is the amount you would need to withdraw by the end of the year to avoid a penalty.
3. Know which retirement accounts are subject to RMDs. The following accounts are all subject to RMDs: 401(k), 403(b), and similar workplace retirement plan accounts; SEP IRAs; SIMPLE IRAs; and Traditional IRAs. Roth accounts don’t have RMDs–neither Roth IRAs nor, more recently, 401(k)s
If you have multiple IRAs, you need to calculate the correct RMD for each account, but can then withdraw that total amount from any of the IRAs. As you approach 73, it’s a good idea to evaluate any retirement accounts you hold and talk with a financial advisor about the possibility of consolidating them.
4. Timing matters, and it’s complicated. A financial advisor will also be able to support the best decision on timing RMDs to minimize both risk and tax burden according to your particular situation. Some people choose to take a lump sum RMD at the start of the year in order to simplify distributions, have the money in hand, and leave no chance of missing the end-of-year deadline. Another benefit to the early withdrawal approach is that, if the account holder passes away that year, their heirs won’t need to figure out how much money to withdraw to avoid the penalty before December 31.
Other people prefer to withdraw in installments in order to maximize their money’s potential tax-deferred gain inside the account, or for cash flow purposes. A risk to withdrawing in installments is the human error that can occur when the account holder is calculating their own RMD rather than leaving that math to the bank. And of course, leaving the withdrawal until later in the year runs you the risk of missing the deadline and being levied that penalty. There are many more pros and cons to each approach to withdrawal timing, so a professional’s advice will benefit anyone with questions.
5. Reduce your tax burden in a given year by giving to charity. In 2025, you can generally give up to $108,000 directly to a charitable organization out of your retirement account, without owing tax on that donation. For people with significant tax-deferred assets, this approach can save them thousands of dollars in taxes while supporting their charitable goals.
If you aren’t yet subject to RMDs, another way to lower your all-time taxes owed is to start RMDs before age 73 and reinvest the money into a Roth IRA. By converting to Roth, you pay taxes in the year you make the withdrawal, but then potentially avoid jumping up into a higher tax bracket down the road, while also building up tax-free savings.
As we move into the second half of 2025, taking time to review the status of your RMDs can make a big difference in the money that ultimately ends up in your pocket in retirement, especially if that review helps you avoid a penalty. Make your withdrawals work for you–not against you.
Additional sources:
https://www.schwab.com/learn/story/required-minimum-distributions-what-you-should-know
https://www.schwab.com/learn/story/reducing-rmds-with-qcds
