As 2025 unfolds, Americans turning 73 face a crucial tax deadline that could significantly impact their retirement savings. The Internal Revenue Service (IRS) requires individuals in this age group to take their first Required Minimum Distribution (RMD) from certain tax-deferred retirement accounts by April 1, 2025. Failure to do so can result in a 25% penalty on the amount not withdrawn, creating unnecessary financial strain during retirement.
This rule applies to traditional IRAs and employer-sponsored plans like 401(k)s but does not affect Roth IRAs, which remain exempt from RMDs during the account holder’s lifetime. For those newly subject to RMDs in 2024, timely action is essential to avoid penalties and remain compliant with IRS regulations. While many financial institutions offer assistance with calculations, the ultimate responsibility lies with the retiree.
Why April 1 Is a Key Financial Deadline
The IRS calculates RMDs using the account balance as of December 31 of the previous year, divided by a life expectancy factor from official IRS tables. Retirees who miss the deadline could face a 25% excise tax, though this can be reduced to 10% if the error is corrected within two years and Form 5329 is submitted.
Beyond avoiding penalties, there are also strategic tax considerations. Some financial advisors recommend taking the first RMD before December 31 of the year the retiree turns 73 to prevent having to take two distributions in one tax year. This can help minimize total taxable income and reduce the risk of higher Medicare premiums or increased taxation on Social Security benefits. However, if retirees anticipate unusually high income in a given year, waiting until April may be more tax-efficient.
What Retirees Should Do Now to Avoid IRS Penalties
To stay compliant and protect their savings, retirees should take the following steps:
- Confirm the correct RMD amount with their financial advisor or institution.
- Schedule the withdrawal well ahead of April 1 to prevent delays or errors.
- Strategically plan the timing of their RMD to fit their broader tax situation.
- If a deadline was missed, act immediately and file IRS Form 5329 to potentially reduce the penalty.
By staying informed and acting promptly, retirees can avoid costly mistakes, maintain their financial security, and ensure a smoother path through retirement.