RMDs (Required Minimum Distributions): What Retirees Must Know in 2025

Retirement planning doesn’t end when you stop working. In fact, one of the most important financial aspects retirees must manage is Required Minimum Distributions (RMDs). These mandatory withdrawals from tax-advantaged retirement accounts can significantly impact your finances, especially if you don’t plan properly.

What Are RMDs?

RMDs are the minimum amounts that retirees must withdraw from their retirement accounts each year, starting at a specific age. These withdrawals are required to prevent retirees from indefinitely deferring taxes on their retirement savings.

Who Must Take RMDs?

RMDs apply to the following accounts:

• Traditional IRAs

• SEP IRAs

• SIMPLE IRAs

• 401(k), 403(b), and 457(b) plans

• Other employer-sponsored retirement plans

When Do RMDs Start?

The SECURE Act 2.0, passed in 2022, changed the RMD starting age:

• If you turn 73 in 2025, you must take your first RMD by April 1, 2026.

• If you were already required to take RMDs in previous years, you must continue doing so.

• Failing to take RMDs results in a 50% penalty on the amount not withdrawn, although the SECURE Act 2.0 reduced this to 25% (or 10% if corrected quickly).

How Are RMDs Calculated?

The IRS determines RMDs based on:

• Your account balance as of December 31 of the previous year.

• The IRS Uniform Lifetime Table, which provides a distribution factor based on age.

Example Calculation:

If you have $500,000 in a traditional IRA at the end of 2024 and the IRS factor for your age is 26.5, then:

$500,000 ÷ 26.5 = $18,868.

This means you must withdraw $18,868 in 2025.

How RMDs Affect Your Taxes

• RMDs are taxable as ordinary income unless from a Roth account.

• They could push you into a higher tax bracket.

• They may increase Medicare premiums due to higher taxable income.

Strategies to Manage RMDs Effectively

1. Delay RMDs with a Roth Conversion

Since Roth IRAs don’t have RMDs, converting part of your traditional IRA to a Roth IRA before RMDs start can help reduce taxable withdrawals.

2. Use Qualified Charitable Distributions (QCDs)

If you are 70½ or older, you can donate up to $100,000 per year directly from your IRA to a charity, reducing your taxable income.

3. Withdraw Strategically Before RMD Age

If you’re in a low tax bracket, consider taking voluntary withdrawals in your 60s to reduce large RMDs later.

4. Consider a Qualified Longevity Annuity Contract (QLAC)

A QLAC allows you to defer RMDs on up to $200,000 of your IRA until age 85, helping manage taxable income.