Retirement Retirement Planning

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

Unlock the secrets to optimizing RMDs for a stress-free retirement journey.

By Will Vitka

Edited by Chris Kissell

Updated Feb. 25, 2025

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, 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.

Steal this billionaire wealth-building technique

The ultra-rich have also been investing in art from big names like Picasso and Bansky for centuries. And it's for a good reason: Contemporary art prices have outpaced the S&P 500 by 136% over the last 27 years.

A new company called Masterworks is now allowing everyday investors to get in on this type of previously-exclusive investment. You can buy a small slice of $1-$30 million paintings from iconic artists, all without needing any art expertise.

If you have at least $10k to invest and are ready to explore diversifying beyond stocks and bonds,see what Masterworks has on offer. (Hurry, they often sell out!)

Your first RMD is due the year you turn 73

Your first required minimum distribution is typically due the year you turn 73. However, there's a little wiggle room here.

During the first year that you are required to take an RMD (the year you turn 73), 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.

Want to learn how to build wealth like the 1%? Sign up for Worthy to get ideas and advice delivered to your inbox.

The deadline for taking subsequent RMDs is Dec. 31

After the year you turn 73, 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.

The consequences of not taking an RMD can be steep

Not taking your RMD each year has some hefty consequences.

Failing to withdraw the full RMD by the deadline incurs a 50% 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.

Get a free stock valued between $5 to $200

Secret: You don't need thousands of dollars to buy thousand-dollar stocks or create a diverse portfolio.

Robinhood offers a method of investing called “fractional shares.” On its own, one share of a single stock could cost a lot of money, making it difficult to diversify. Robinhood allows you to buy pieces of stock instead, so you have the option to build a diverse portfolio quickly.

Let’s say you want to invest $250, as an example.

With that amount, you could build a relatively diverse portfolio with an investment of $50 in a big tech stock, $50 in a retail stock, $50 in an energy stock, $50 in a manufacturing stock, and $50 in a bank.¹ This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice. To get stock reward, new customers need to sign up, get approved, and link their bank account. Stock rewards shares cannot be sold until 3 trading days after the reward is granted and the cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at <a href="https://robinhood.com/us/en/support/articles/open-account-pick-your-stock/">rbnhd.co/freestock</a>. Fractional shares are illiquid outside of Robinhood and are not transferable. Not all securities available through Robinhood are eligible for fractional share orders. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see the Fractional Shares section of our Customer Agreement. Robinhood Gold is offered through Robinhood Financial LLC and is a membership offering premium services available for a fee.

Even better news? Add a Robinhood Gold membership, and you’ll get access to 4.00% (as of 12/27/24) APY² Annual Percentage Yield. Rate valid as of April 12, 2024. To earn interest, a cash balance is needed. If you have a margin balance, there is no cash balance to earn interest. Interest rates for cash sweep and margin investing can change at any time. Fees may reduce interest earnings. on your uninvested cash³ Interest is earned on uninvested cash swept from your brokerage account to partner banks. Partner banks pay interest on your swept cash, minus any fees paid to Robinhood. As of Nov 15, 2023, the Annual Percentage Yield (APY) that you will receive is 1.5%, or 5% for Gold customers. The APY might change at any time at the partner banks' or Robinhood's discretion. Additionally, any fees Robinhood receives may vary and are subject to change. Neither Robinhood Financial LLC nor any of its affiliates are banks. All investments involve risk and loss of principal is possible. Robinhood Financial LLC (member SIPC), is a registered broker dealer. and the ability to buy and sell stocks 24 hours a day, 5 days a week.

Open and fund a Robinhood account and earn up to $200 in stock

Calculating your RMD can be a little tricky

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.

Your RMD might be higher in 2025

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 options for how to withdraw your RMD

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.

Grow Your $$: 11 brilliant ways to build wealth after 40

You will owe taxes on your RMD

One of the harsh realities about RMDs is that 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 don't need to spend all of your RMD

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.

Bottom line

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.

More from FinanceBuzz: