Many retirees who turned or will turn 73 or older this year are up against a potentially costly tax deadline.
Folks that age who own retirement accounts generally must withdraw what the IRS calls a required minimum distribution (RMD) by Dec. 31 of every year. Those who miss their RMD deadline face a whopping 25% fine — which could translate to hundreds or thousands of dollars.
Read on for everything you need to know about RMDs and associated deadlines.
What is an RMD?
An RMD is a minimum amount of money that the IRS requires you to withdraw from most types of retirement accounts each year, typically starting the year you turn 73.
There are exceptions to the age aspect of this rule for people who:
- Turned 72 in 2022 or earlier. Their RMDs likely started the year in which they turned either 70½ or 72. This is because RMDs previously started at 70½. A federal law known as the Secure Act of 2019 changed the RMD age from 70½ to 72. Then, a follow-up law, the Secure 2.0 Act of 2022, bumped it up to 73 starting in 2023 and 75 in 2033.
- Are working and have a workplace retirement plan that allows postponement of RMDs. For such workers, their first RMD may not be due until they retire.
There is also an exception to the deadline aspect of the general RMD rule for people who:
- Were born in 1952. For these folks, their RMD for 2025 will be their very first RMD, so they get an extended deadline this one time. Specifically, the IRS gives these folks until April 1 of the following year to take their initial RMD. So, those who turn 73 this year have until April 1, 2026.
- Are working and have a workplace retirement plan that allows postponement of RMDs. These workers get an extended deadline for their very first RMD: The IRS gives them until April 1 of the year after they retire.
The 25% penalty
Whatever your deadline may be, if you fail to withdraw an RMD in full and on time, the IRS could penalize you. The amount of this penalty is equal to 25% of whatever RMD amount you failed to withdraw on time, although it’s reduced to 10% if the issue is corrected within two years, according to the IRS.
Say your RMD for 2025 is $10,000, and it’s due by Dec. 31. If you fail to withdraw it by then, you could be looking at a fine of $2,500.
Affected account types
The types of retirement accounts to which RMDs apply include:
- Traditional individual retirement account (IRA)
- Simplified Employee Pension (SEP) IRA
- Savings Incentive Match Plan for Employees (SIMPLE) IRA
- 401(k) plans
- 403(b) plans
- 457(b) plans
- Profit-sharing plans
Roth IRAs are not subject to RMDs during the original account owner’s lifetime. As of 2024, Roth 401(k) plans are not subject to RMDs, either, thanks to a provision of the Secure 2.0 Act.
Calculating your RMD amount
The exact amount of an RMD depends on your life expectancy and retirement account balances. The IRS offers worksheets to help you determine your RMD amount.
Your retirement plan manager might compute your RMD for you, but the IRS warns that taxpayers themselves are ultimately responsible for getting their RMDs right:
“Although the IRA custodian or retirement plan administrator may calculate the RMD, the account owner is ultimately responsible for taking the correct RMD amount.”
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