As 2025 progresses, retirees who turned 73 in 2024 face a critical deadline: April 1, 2025. This date marks the last day to initiate Required Minimum Distributions (RMDs) from certain retirement accounts without incurring substantial penalties.
Understanding Required Minimum Distributions (RMDs)
RMDs are mandatory annual withdrawals from tax-deferred retirement accounts, ensuring that these funds are eventually taxed.
The IRS mandates that individuals begin taking RMDs starting at age 73. For those who reached this age in 2024, the first RMD must be taken by April 1, 2025.
Retirement Accounts Subject to RMDs
RMD rules apply to various retirement accounts, including:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- 457(b) plans
However, Roth IRAs are exempt from RMDs during the account holder’s lifetime.
Consequences of Missing the April 1 Deadline
Failing to withdraw the full RMD by the April 1 deadline results in a 25% excise tax on the amount not withdrawn. This penalty can be reduced to 10% if the error is corrected within two years by filing IRS Form 5329.
Strategic Considerations for RMD Timing
While the initial RMD can be delayed until April 1, some financial advisors recommend taking it by December 31 of the year the retiree turns 73.
This approach prevents having two RMDs in one tax year, potentially minimizing taxable income and reducing the risk of higher Medicare premiums or increased taxation on Social Security benefits.
Steps to Ensure Compliance and Avoid Penalties
To navigate RMD requirements effectively, retirees should:
- Verify RMD Amounts: Consult with financial advisors or retirement plan administrators to determine the correct RMD amounts.
- Schedule Withdrawals Promptly: Arrange for RMD withdrawals well before the April 1 deadline to allow processing time.
- Align RMDs with Tax Planning: Consider the timing of RMDs in the context of overall tax strategies to optimize tax liability.
- Address Missed RMDs Immediately: If an RMD is missed, take corrective action swiftly and file IRS Form 5329 to potentially reduce penalties.
Key RMD Deadlines and Penalties
| Event | Deadline | Penalty for Missed Deadline |
|---|---|---|
| First RMD for individuals turning 73 in 2024 | April 1, 2025 | 25% of the shortfall |
| Subsequent RMDs | December 31 annually | 25% of the shortfall |
| Corrected RMDs (if deadline missed) | Within 2 years | Reduced to 10% with Form 5329 |
Timely initiation and management of RMDs are essential to avoid substantial IRS penalties and to align retirement withdrawals with broader financial plans.
Retirees should proactively engage with financial professionals to ensure compliance and optimize their retirement income strategies.
FAQs
What is the penalty for not taking an RMD by the deadline?
Missing the RMD deadline results in a 25% excise tax on the amount not withdrawn.
Can I take my RMD from one account if I have multiple retirement accounts?
Yes, you can aggregate your RMDs from multiple IRAs and withdraw the total amount from one account. However, RMDs from 401(k) plans must be taken separately from each plan.
Are Roth IRAs subject to RMDs during the account holder’s lifetime?
No, Roth IRAs are not subject to RMDs during the account holder’s lifetime.