Summary

If you’re turning 73 in 2025 or later, it’s time to start thinking about required minimum distributions (RMDs). These are the annual withdrawals that the IRS mandates from certain retirement accounts once you reach a specific age. The idea behind RMDs is to ensure the IRS eventually collects taxes on previously untaxed retirement savings. This article explains how RMDs work, how to calculate them, recent rule changes for 2025, and what happens if you miss your deadline.

📉 What Is a Required Minimum Distribution (RMD)?

A required minimum distribution (RMD) is the minimum amount the IRS requires you to withdraw annually from specific retirement accounts, starting at age 73. These distributions apply to tax-deferred retirement accounts like traditional IRAs, 401(k)s, SEP IRAs, and SIMPLE IRAs. RMDs are meant to prevent taxpayers from avoiding taxes forever on pre-tax retirement contributions. The money withdrawn counts as taxable income unless you’ve already paid taxes on it. Starting in 2033, the RMD age will increase again, to 75. Importantly, Roth IRAs aren’t subject to RMDs while the account holder is alive, though inherited Roth IRAs may require distributions.

Takeaways:

• RMDs begin at age 73 in 2025, and increase to age 75 in 2033.
• Distributions are calculated based on IRS life expectancy tables.
• Missing an RMD can trigger a 25% penalty, though this can be reduced to 10% if corrected within two years.
• Roth 401(k)s and similar accounts no longer have RMDs starting in 2024.
• Roth IRAs are not subject to RMDs unless inherited.

Key Terms

• RMD: Required Minimum Distribution—annual withdrawal mandated by the IRS from certain retirement accounts.
• IRA: Individual Retirement Account—used to save for retirement, with tax advantages.
• Life Expectancy Table: An IRS-published table used to determine your distribution period for RMDs.
• Secure 2.0 Act: A 2022 law that changes the RMD age and other retirement-related rules.

🧮 How RMDs Are Calculated

The formula to calculate your required minimum distribution is straightforward: divide your account balance as of December 31 of the previous year by a number based on your age from the IRS life expectancy tables. The table you use depends on your relationship with your beneficiary. If your spouse is your sole beneficiary and more than 10 years younger than you, the Joint and Last Survivor Table is used. Otherwise, most people use the Uniform Lifetime Table. Inherited IRAs follow the Single Life Expectancy Table.

For example, say you turn 74 in 2025 and had $200,000 in your IRA at the end of 2024. According to the IRS Uniform Lifetime Table, your distribution period at age 74 is 25.5. That means your RMD for 2025 is $7,843 ($200,000 ÷ 25.5). You’re always allowed to withdraw more than the minimum—this is the floor, not a ceiling.

Takeaways:

• Divide your account balance by the IRS distribution period number for your age.
• The table you use depends on your age, beneficiary, and type of account.
• Most people use the Uniform Lifetime Table unless exceptions apply.

Key Terms

• Uniform Lifetime Table: The IRS chart most people use to calculate their annual RMD.
• Joint and Last Survivor Table: Used when your spouse is more than 10 years younger and is the sole beneficiary.
• Single Life Expectancy Table: Used for inherited IRAs.

🚫 RMD Penalties and Exceptions

Failing to take your RMD by the required deadline can be costly. The standard penalty is 25% of the amount you should have withdrawn. However, if you catch and fix the error within two years, the IRS may reduce the penalty to 10%—especially for IRAs. Note that some accounts give you a bit more flexibility. For example, if you’re still working and have a 401(k) through your employer, you may be able to delay taking your RMD until the year you retire.

In addition, the Secure 2.0 Act brought a few helpful updates: Roth 401(k)s and similar employer-sponsored Roth accounts no longer require RMDs starting in 2024. Roth IRAs never require RMDs while the owner is alive, but beneficiaries may be subject to different rules.

Takeaways:

• The penalty for missing an RMD is 25%, reduced to 10% if corrected within two years.
• You may delay 401(k) RMDs if you're still working and don't own the company.
• Roth 401(k)s no longer have RMDs as of 2024.

Key Terms

• RMD Penalty: A financial penalty assessed for failing to take a required distribution.
• Secure 2.0 Act: Recent legislation that made changes to RMD rules, including increasing the starting age and eliminating some Roth account RMDs.

📚 Managing RMDs Across Multiple Accounts

If you have several retirement accounts, RMD rules vary. You must calculate the RMD for each account separately. However, for IRAs and 403(b)s, you can take the total RMD from just one of the accounts. This is called aggregation. Unfortunately, 401(k) and 457(b) plans don’t allow for aggregation—you must take the required amount from each account individually. Keeping track of this can be tricky, so it might be wise to consult with a financial advisor who can help you stay compliant and make the most of your retirement funds.

Takeaways:

• IRAs and 403(b)s allow RMD aggregation—withdraw from one to cover all.
• 401(k)s and 457(b)s require separate RMDs from each account.
• Consider working with a financial advisor for help managing RMDs.

Key Terms

• Aggregation: The ability to combine RMDs from multiple IRAs or 403(b)s and take the total from one account.
• 457(b): A type of tax-deferred retirement plan for government and certain nonprofit employees.

Conclusion

Required minimum distributions are a key part of retirement planning and tax strategy. Understanding the rules, calculating the correct amount, and avoiding penalties can help preserve your retirement income. With new updates from the Secure 2.0 Act and the elimination of RMDs for Roth workplace accounts, staying informed has never been more important. Be proactive, track your deadlines, and consider speaking with a financial advisor to make the most of your retirement years.