April 1 Deadline Approaching for Required Minimum Distributions (RMDs) – What Retirees Need to Know

The IRS has issued a reminder that retirees who turned 73 in 2024 must take their first Required Minimum Distribution (RMD) from IRAs, 401(k)s, and similar retirement accounts by April 1, 2025. Failing to withdraw the required amount can result in substantial penalties, making it essential for retirees to meet this deadline.

What Are RMDs?

RMDs are mandatory withdrawals from tax-deferred retirement accounts, ensuring that retirees pay income taxes on their savings. The IRS determines the required amount based on life expectancy and account balances at year-end.

RMDs apply to:

✔️ Traditional IRAs

✔️ 401(k) and 403(b) plans

✔️ SEP IRAs and SIMPLE IRAs

✔️ Other employer-sponsored retirement accounts

Roth IRAs do not require RMDs unless inherited.

Important Deadlines

📅 April 1, 2025 – Deadline for first-time RMDs for those who turned 73 in 2024📅 December 31, 2025 – Deadline for the second RMD (since first-time takers will have two distributions in one year)

Tax Implications and Potential Pitfalls

1️⃣ Higher Taxable Income: Taking two RMDs in 2025 (one by April 1 and another by December 31) could push retirees into a higher tax bracket, increasing their overall tax liability. To avoid this, some choose to take their first RMD before December 31, 2024, rather than waiting until April 1, 2025.

2️⃣ Penalties for Missing RMDs: The IRS imposes a 25% penalty on missed RMDs. If corrected within two years, the penalty may be reduced to 10%.

3️⃣ State Tax Considerations: Some states tax RMDs differently. Retirees should consult a tax professional to understand their state-specific tax obligations.

Planning Strategies

✔️ Withhold Taxes: Retirees can choose to have taxes withheld from RMDs to avoid a large tax bill at year-end.

✔️ Qualified Charitable Distributions (QCDs): Individuals age 70½ or older can donate up to $105,000 from an IRA directly to charity, satisfying RMDs while avoiding taxable income.

✔️ Convert to a Roth IRA: Roth IRA conversions before RMD age can help reduce taxable RMDs in future years.

Final Thoughts

With the April 1 deadline approaching, retirees should review their account balances, distribution schedules, and tax strategies to ensure compliance. Failing to take an RMD on time can lead to unnecessary penalties and tax complications.

If you’re unsure how much you need to withdraw or how to minimize taxes on RMDs, consider speaking with a financial advisor or tax professional.