As 2025 progresses, retirees reaching the age of 73 face a critical financial deadline that could significantly impact their retirement savings. The Internal Revenue Service (IRS) requires that these individuals take their first Required Minimum Distribution (RMD) from certain tax-deferred retirement accounts no later than April 1, 2025. Missing this mandatory withdrawal could result in hefty penalties, further complicating financial planning in a stage of life where every dollar counts.
The rule applies to traditional IRAs and employer-sponsored retirement plans like 401(k) accounts, but excludes Roth IRAs, which remain untouched by RMDs during the account holder’s lifetime. For those newly subject to this requirement in 2024, understanding the process and acting in time is essential to avoiding financial consequences and staying compliant with IRS regulations.
Why the April 1 Deadline Matters
The IRS uses a specific formula to calculate the RMD, dividing the retirement account balance as of December 31 of the previous year by a life expectancy factor published in IRS tables. While many financial institutions assist with these calculations, the ultimate responsibility rests with the retiree. Failing to withdraw the required amount can trigger a penalty of 25% of the shortfall—although the IRS may reduce it to 10% if the error is corrected within two years and Form 5329 is filed.
There’s also a strategic angle to consider. Some financial advisors recommend taking the first RMD by December 31 of the same year you turn 73 to avoid the burden of taking two distributions in one year, which can increase taxable income and affect other benefits. However, if a retiree expects unusually high income due to capital gains or other sources, delaying the RMD until April of the following year might reduce the total tax bill.
Steps Retirees Should Take Now
To comply with IRS rules and avoid unnecessary penalties, retirees should:
- Verify the exact RMD amount with their financial institution or tax advisor.
- Schedule the withdrawal well ahead of the April 1 deadline to avoid last-minute issues.
- Evaluate the timing of the RMD to align with their broader financial and tax strategy.
- If a withdrawal was missed, correct it quickly and file IRS Form 5329 to potentially reduce penalties.
By planning ahead and taking timely action, retirees can protect their savings, remain in good standing with the IRS, and ensure a smoother financial future.