IRS reminder: April 1 is the final day to begin required withdrawals from IRAs and 401(k)s
The IRS is reminding retirees that April 1, 2025, is the final day to begin taking required minimum distributions (RMDs) from their Traditional IRAs and 401(k) plans.
Failing to start these withdrawals on time can result in steep penalties, so it’s important to understand the RMD rules and ensure you're on track.
What are required minimum distributions (RMDs)?
An RMD is the minimum amount of money you must withdraw annually from your retirement accounts once you reach a certain age.
This rule applies to all retirement accounts where you have pre-tax contributions, including:
- Traditional IRAs
- 401(k) plans
- 403(b) plans
- Other similar employer-sponsored retirement accounts
RMD age changes: What you need to know
For most people, the RMD age used to be 70½, but recent legislation has changed the rules:
- For individuals turning 72 after January 1, 2020, the RMD age is now 72.
- If you reached 70½ before January 1, 2020, the previous rules apply and you must begin taking RMDs at 70½.
Therefore, those who turn 72 in 2025 need to begin taking their RMD by April 1, 2026.
Key deadline: April 1, 2025
If you are turning 72 in 2025, you must begin taking your RMD by April 1, 2025. The IRS requires that your first withdrawal be made by this date, and if you miss the deadline, you may face a hefty penalty.
After that, your subsequent RMDs must be taken by December 31 each year to avoid penalties.
How to calculate your RMD
The amount of your RMD is determined by your account balance and your life expectancy as per IRS life expectancy tables.
The IRS provides an RMD worksheet to help you determine how much you need to withdraw. Here's a general overview of how it works:
- Account balance: Use the balance of your retirement account(s) as of December 31 of the previous year.
- Life expectancy factor: The IRS assigns a life expectancy factor based on your age. You divide your account balance by the corresponding factor to get your RMD amount.
Example:
If you have $100,000 in your IRA at the end of the year and your life expectancy factor is 25.6, your RMD for the year would be $3,906.25.
Penalties for missing RMDs
The IRS is strict about enforcing RMD rules. If you don’t take the required distribution by the deadline, you could face a penalty of 50% of the RMD amount you should have withdrawn.
For example, if your RMD was $3,906.25 and you didn’t withdraw it, you could be hit with a $1,953.13 penalty.
What happens if you still have questions?
It’s always a good idea to consult a tax professional if you're unsure about your RMD requirements. They can help you:
- Understand how to calculate your RMD.
- Ensure you're withdrawing the right amount.
- Help you avoid any potential penalties.
At Taxes for Expats, our experts can help you navigate RMDs and retirement account rules to ensure your tax planning stays on track.
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