As the year comes to a close, it’s important for retirement account holders to remember Required Minimum Distributions, or RMDs. These are amounts the IRS requires individuals to withdraw each year from most tax-deferred retirement accounts once they reach a certain age. Failing to take your RMD can result in significant penalties, making careful planning essential.
Understanding RMDs and Who They Apply To
RMDs apply to most traditional IRAs, 401(k)s, 403(b)s, SEP IRAs, and SIMPLE IRAs once the account owner reaches the IRS-mandated age. In 2025, the rule generally requires individuals to begin taking RMDs once they reach age 73.
This age requirement is a result of the SECURE Act 2.0, which raised the starting age from 72 to 73 for people turning 72 after December 31, 2022. The age will further increase to 75 in 2033 for those reaching age 74 after December 31, 2032.
Importantly, RMDs do not apply to Roth IRAs during the lifetime of the original owner, although they do apply to Roth accounts in employer plans in certain circumstances.
Key Deadlines You Should Know
When you reach age 73:
- Your first RMD must be taken by April 1 of the year after you turn 73.
- All subsequent RMDs must be taken by December 31 each year. If you delay your first RMD until April 1, you’ll have to take two distributions in the same year – the delayed first RMD and your next year’s RMD – potentially increasing your taxable income.
How RMDs are Calculated
The IRS calculates RMD amounts using designated life expectancy tables and your retirement account balance as of December 31 of the previous year. To determine your RMD, divide your year-end account balance by the distribution period corresponding to your age from the IRS tables.
Here’s an example:
- If you are age 80 and your IRA was valued at $100,000 at year-end, and the distribution period for age 80 is 20.2, then your RMD would be: $4,950.50.
This annual calculation must be repeated each year, as your life expectancy factor changes with age.
Why Planning Matters
Even if you don’t need the funds for living expenses, you are still required to take your RMD. Missing the deadline — or withdrawing too little — can trigger a penalty of 50% of the amount that should have been withdrawn. Beyond avoiding penalties, thoughtful planning can help manage your tax liability and integrate RMDs into your broader retirement strategy.
Strategies to Manage RMDs
There are several ways to approach RMDs strategically:
- Timing Your Withdrawals: You can take distributions gradually throughout the year rather than in a single lump sum. This can help manage your taxable income.
- Charitable Giving: If you’re charitably inclined, you may be able to make qualified charitable distributions directly from your IRA, satisfying your RMD while benefiting a nonprofit.
- Reinvestment Options: Even if you don’t need the funds for spending, consider reinvesting them in taxable accounts to keep your money working for you.
It’s important to review your retirement accounts before year-end to ensure your RMDs are on track. Discussing your strategy with a financial advisor can help you avoid surprises, minimize taxes, and align your withdrawals with your long-term financial plan.
RMDs may be a requirement, but with proper planning, they can become a manageable — and even strategic — part of your retirement journey.
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Bautis Financial LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.