As retirement accounts grow, so do IRS requirements. Once you reach a certain age, you must start withdrawing money from your tax-deferred retirement accounts—these are known as Required Minimum Distributions (RMDs). Understanding how RMDs work and how they affect your taxes is crucial for effective retirement planning, especially near year-end.
📅 What Are RMDs?
Required Minimum Distributions are the minimum amounts you must withdraw annually from most tax-deferred retirement accounts once you reach a certain age. RMDs ensure that the IRS eventually taxes the funds that have grown tax-free in your retirement accounts.
📆 When Do RMDs Start in 2025 and 2026?
Under the SECURE Act 2.0, the age at which RMDs begin has changed:
- Born 1951–1959: RMDs start at age 73
- Born 1960 or later: RMDs start at age 75
If you turn 73 in 2025, you must take your first RMD by April 1, 2026. Every subsequent RMD is due by December 31 of each year.
💼 Which Accounts Are Subject to RMDs?
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k), 403(b), and 457(b) plans (except for Roth 401(k)s beginning in 2024)
- Inherited IRAs (including Roth IRAs, depending on the situation)
Roth IRAs (owned by you) are not subject to lifetime RMDs.
🧮 How to Calculate RMDs
The IRS provides a life expectancy factor table (Uniform Lifetime Table). To calculate your RMD for the year:
- Find your retirement account balance as of December 31 of the prior year
- Locate your age and corresponding factor in the IRS Uniform Lifetime Table
- Divide the account balance by the factor
Example:
- IRA Balance on 12/31/2024: $500,000
- Age in 2025: 73
- Distribution factor: 26.5
- RMD = $500,000 ÷ 26.5 = $18,867.92
Note: If you have multiple IRAs, you can take your RMD from any one or combination of accounts. For employer plans (like 401(k)s), RMDs must be taken separately from each account.
💸 Are RMDs Taxable?
Yes. RMDs are taxed as ordinary income at your applicable tax rate. They do not qualify for capital gains treatment.
- Roth IRA RMDs (inherited only): Tax-free if held at least 5 years
- Traditional IRA or 401(k): Fully taxable unless you made nondeductible contributions
📥 How to Report RMDs on Your Tax Return
- You’ll receive Form 1099-R showing the total distribution
- Report on Form 1040, Line 4b (IRA) or Line 5b (pensions and annuities)
⚠️ Penalties for Missing or Underpaying RMDs
As of 2023 and beyond, the penalty for failing to take the full RMD is:
25% of the RMD amount not withdrawn (reduced to 10% if corrected within 2 years)
You can request a waiver by filing Form 5329 and explaining reasonable cause for missing the distribution.
🎯 Strategies to Reduce the Tax Impact of RMDs
- Qualified Charitable Distributions (QCDs): Donate up to $100,000 directly from your IRA to charity; counts toward RMD but not as income
- Roth conversions before RMD age: Convert traditional IRA funds to Roth before age 73 to reduce future RMDs
- Delay first RMD: First RMD can be delayed until April 1 of the year after turning 73, but this results in two RMDs in one year
- Coordinate withdrawals: Spread income to avoid jumping into higher tax brackets or increasing Medicare premiums (IRMAA)
📅 RMD Deadline Reminders for 2025
- April 1, 2026: Deadline for first RMD if you turn 73 in 2025
- December 31, 2025: Deadline for all other RMDs
🔍 People Also Ask (FAQs)
Q: Can I reinvest my RMD into another IRA?
A: No. Once withdrawn, RMDs cannot be rolled back into a retirement account. However, you can invest the after-tax amount in a brokerage or savings account.
Q: Are RMDs subject to state income tax?
A: Yes, in most states that have an income tax. A few states (e.g., Florida, Texas, Nevada) do not tax retirement income.
Q: Do I still need to take RMDs if I’m working past age 73?
A: If you’re still working and participating in your current employer’s 401(k), you may delay RMDs from that plan—but not from IRAs or former employer plans.
Q: Do inherited IRAs have different RMD rules?
A: Yes. Non-spouse beneficiaries often must follow the 10-year rule or take annual RMDs, depending on when the original owner died.
📘 Final Thoughts
Required Minimum Distributions are an unavoidable part of retirement—but with proper planning, you can manage their tax impact. Start calculating your RMDs early each year, consider QCDs or Roth strategies, and always take distributions by the deadline to avoid hefty penalties.
Pro Tip: Use the IRS RMD Worksheet or work with a financial advisor to ensure you’re withdrawing the correct amount and minimizing tax exposure in 2025 and beyond.
