Required Minimum Distributions: What's New in 2025

Typically, once you reach age 73 (or 75 if you were born in 1960 or later), you must begin taking annual RMDs from all tax-deferred retirement accounts, including:

• 401(k), 403(b), and similar workplace retirement plan accounts
• SEP IRAs
• SIMPLE IRAs
• Traditional IRAs

Generally speaking, you can calculate your RMDs for a given year by taking your account balance on December 31 of the previous year and dividing it by your "distribution period"—a number the IRS assigns to each age.

For example, let's say you're 75, single, and ended last year with $2 million in your IRA. According to the table, your distribution period is 24.6, which means your RMD for the year would be $81,301 ($2,000,000 ÷ 24.6). If you have multiple tax-deferred retirement accounts, you must calculate RMDs separately for each one.

Many financial institutions, including Schwab, will calculate your RMDs for you—and may even offer automated withdrawals—but typically only for the accounts held at their firms. If you have multiple retirement accounts, you might consider consolidating them with a single firm to streamline your RMDs and reduce the odds of withdrawing too much or too little.

You must withdraw your entire RMD amount by December 31 of each year, with two possible exceptions:

• It's your first RMD. You may choose to delay your first RMD until April 1 of the year following your 73rd birthday (75th birthday for those born in 1960 or later). However, delaying your first distribution means taking your first and second RMDs in the same tax year, which could significantly increase your taxable income. This strategy may make sense if you're still bringing in steady income, but for most people, it's usually better to take the distribution by the end of the year rather than wait until April 1.
• You're still working. If you're enrolled in your current employer's qualified retirement plan and you don't own more than 5% of the business, you may be able to delay taking RMDs from that account until April 1 of the year after you retire—check with your plan administrator to confirm. However, you must continue taking RMDs from all other tax-deferred retirement accounts.

If you miss a deadline or don't withdraw your full RMD, you'll owe a penalty tax of up to 25% of the amount you failed to withdraw. For example, if your RMD was $100,000 but you withdrew only $50,000, you'd owe a quarter of the shortfall ($12,500) as a penalty.

As for when in the year to take your RMDs, it will ultimately depend on your income needs and personal preferences. For example, some may choose to take a lump-sum distribution at the beginning of the year so they don't have to think about it again until the following year. Others might find that taking regular withdrawals is the simplest way to meet their RMD requirements and manage their cash flow, especially if you need the funds to cover living expenses. However, be careful should you plan on waiting to take RMDs until the end of the year. You don't want to accidentally forget about them during the holidays.

Regardless of when and how you take your withdrawals, you should view it as an opportunity to revisit whether your asset allocation is still in line with your risk tolerance and rebalance as needed. That way, you're satisfying your RMDs for the year and ensuring your portfolio continues to be aligned with your goals.

Retirees sometimes find that their RMDs provide more income than they need in a given year. What's more, when combined with other income sources, like dividends and interest payments, RMDs can push you into a higher income tax bracket and could affect the taxation of Social Security benefits and the premiums you pay for Medicare.

If you're worried about the effects of RMDs on your tax bill and health care costs, there are ways to help ease your RMD tax burden. Consider employing these three tax-saving strategies:

If you have significant savings in your tax-deferred retirement account, you should carefully consider whether it makes sense to start making withdrawals at your RMD age or begin drawing down your account as soon as possible without penalty. Waiting to take distributions allows your savings to potentially grow more during the intervening years, but a larger balance could result in a significant bump in the size of your RMDs, and thus your tax bill, once you retire.

But if you're concerned your RMD income may push you into a higher tax bracket, you can make penalty-free withdrawals from tax-deferred accounts once you reach age 59½. The distributions are still taxed as ordinary income, but over time they will reduce the size of your tax-deferred accounts—and hence your potential RMDs in future years.

When employing this strategy, it helps to think of it as tax-bracket optimization. For example, for tax year 2025 if you're a joint filer in the federal 24% tax bracket and you have $250,000 in taxable income after taking the standard deduction, you could withdraw another $144,600 from your tax-deferred accounts and stay in your current tax bracket.  

The idea is to select a tax bracket that makes the most sense for your circumstances—and then fill up that bracket with distributions from your tax-deferred retirement accounts each year. Those funds can then be reinvested in a taxable brokerage account and, if invested tax efficiently, could produce very little additional taxable income each year.

Drawing down tax-deferred accounts without penalty starting at age 59½ can reduce RMDs—and help keep taxes in check.

Another way to optimize your tax bracket and potentially reduce future RMDs is to convert some of your tax-deferred savings to a Roth IRA in the years leading up to your RMD age, since Roth accounts aren't subject to RMDs. Instead of taking the pre-RMD withdrawals and investing the funds into a taxable account, you could use those funds to do a Roth conversion each year until you reach your RMD age.

You'll have to pay tax on the converted amount in the year the conversion occurred, so this strategy is generally a good idea only if you think your tax bracket in the future will be equal to or higher than it is now. Taxes are historically low, and they could go up in the future. The decision ultimately comes down to whether you're comfortable locking in today's tax rates on the converted funds.

A qualified charitable distribution (QCD) allows individuals age 70½ and older to donate up to $108,000 for tax year 2025 (indexed for inflation) from an IRA account directly to charity—and use some or all of those funds to satisfy RMDs for the year.

For example, if your RMD for the year is $100,000 but you only need $50,000 of that for living expenses, you could donate the remaining $50,000 via a QCD to satisfy the rest of your RMD.

For those that are charitability inclined, QCDs can be a great tool for managing taxable income in retirement while also helping a worthy cause. Just be aware that QCDs are not permitted from 401(k)s or other qualified plans.

If you're interested in making charitable donations, taking your full RMD and then donating cash could result in a higher tax bill than if you were to give through a QCD.

When implementing an RMD-reduction strategy, there's no substitute for personalized advice from a tax professional who knows the details of your individual situation. A tax advisor can help you anticipate potential challenges and consider how these strategies fit into your overall financial plan.