8 Facts About RMDs in 2025 (#5 is Good News)

A retirement account is a great place to stash cash during your working career. If you put away enough money, you might even be able to retire early.

However, once you turn 73 (or 75 if you were born on or after Jan. 1, 1960), the money you put into a traditional IRA or 401(k) plan can't simply sit untouched in your account. At that point, the federal government mandates that you take required minimum distributions (RMD withdrawals).

If you need to make an RMD in 2025, here are eight important things to know.

Your first required minimum distribution is typically due the year you turn 73 (or 75 if you were born on or after Jan. 1, 1960). However, there's a little wiggle room here.

During the first year that you are required to take an RMD, you can delay the first RMD until April 1 of the following year. So, if you turn 73 in 2025, your first RMD technically isn't due until April 1, 2026.

Of course, if you do this, you will take two RMDs next year. That could push you into a higher tax bracket. 

So, if you want to get ahead financially, consider this strategy carefully to ensure it's the right move for you.

After the year you turn 73 or 75, the deadline for subsequent RMDs changes to Dec. 31.

So, Merry Christmas and Happy New Year — and remember that deadline each year so you don't run afoul of the IRS.

Not taking your RMD each year has some hefty consequences.

Failing to withdraw the full RMD by the deadline incurs a 25% excise tax — a painful penalty. The SECURE 2.0 Act reduces the penalty to 25%, or possibly 10% if you correct the mistake within two years.

To fix things, file Form 5329 with the federal tax return for the year the RMD was due but was not taken.

To calculate your 2025 RMD, divide your tax-deferred retirement account balance as of Dec. 31, 2024, by a distribution period that you can find by looking at the Uniform Lifetime Table published by the IRS.

However, if your spouse is your sole beneficiary and 10 or more years younger, you can use the Joint Life and Last Survivor Expectancy Table instead.

If all that sounds intimidating, you might be relieved to know that investment firms such as Vanguard and Fidelity typically will calculate your RMD for you.

The stock market ended on a high note in 2024. That's likely good news for your wallet, but it also means your RMD might be a little larger in 2025.

If your portfolio balance at the end of 2024 increased substantially, your RMD amount will be higher. Just remember that a bigger RMD is a small price to pay for your overall net worth gains.

You have some flexibility in exactly how to take your RMD. One is a lump-sum withdrawal in which you take the entire RMD at once. Other options are taking periodic withdrawals or setting up automatic monthly withdrawals.

There are pros and cons to each approach. Some opt for monthly distributions so they have a steady income to cover expenses. 

Others prefer taking it all at once early in the year or waiting until the very end of the year so their investments can continue to grow.

Choose the option that suits your situation best. If you are unsure how to proceed, consider sitting with a financial advisor who can help.

One of the harsh realities about RMDs is that in most cases, the money you withdraw will be taxed. That means some of that withdrawal will never make it into your wallet.

There may be ways to reduce your taxes. For example, you could do a series of Roth IRA conversions in the years leading up to your first RMD. Qualified charitable distributions — in which your money goes to a charity — can also lower your tax bill.

As with any matter involving taxes, it might be best to consult a tax professional to ensure that you choose an approach that works best for you.

You aren't required to actually spend your RMD if you don't need the money. There are plenty of other options for where you can put the cash to work.

For example, if you want to continue to build wealth, you could reinvest it in a taxable investment account.

You could also bolster your emergency fund, help pay for a grandchild's college education with contributions to a 529 plan, or even give the money to charity.

If you need to take RMDs during 2025, remember the items on this list so you do it right. This will help you avoid penalties and use the withdrawn funds wisely.

If you are still working, study the tips on this list so you'll be prepared to make the most of your RMDs during your golden years for a stress-free retirement.