Folks approaching retirement or already enjoying their golden years may have heard of Required Minimum Distributions, or RMDs. Understanding RMDs and how they can impact your financial and tax planning is a key part of long-term investing and successful retirement planning

In this blog, we’re breaking down everything you need to know: What are RMDs, how do RMDs work, the new RMD rules, tax considerations, and planning strategies that can help you retire comfortably and securely.

What Are RMDs?

RMDs, or Required Minimum Distributions are the mandatory withdrawals you take each year from most tax-deferred retirement accounts, including:

• Traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• Employer-sponsored retirement plans such as 401(k), 403(b), and 457 plans

These accounts have allowed you to defer taxes while accumulating retirement savings. Eventually, the IRS wants to start collecting its share—hence the requirement to withdraw and pay income taxes on those distributions once you reach a certain age.

Keeping You Updated: New RMD Rules in 2025

Over the years, the Secure Act and Secure Act 2.0 have significantly altered the landscape for RMDs. These changes impact when you must start taking RMDs and how much you must withdraw.

RMD Age by Birth Year:

• Born before July 1, 1949: RMDs began at age 70½
• Born 1951–1959: RMDs begin at age 73
• Born 1960 or later: RMDs begin at age 75

So, if you turn 73 in 2025, your first RMD year is 2025. You don’t have to wait until your actual birthday month to take your RMD—you can start as early as January 1st of the year you turn 73.

Did you know? A Special RMD Rule

RMDs must be taken by December 31 of each year, starting the year you reach your required age. However, there’s a special rule for your first RMD only:

• You can delay your first RMD until April 1 of the following year.

⚠️ Caution: If you delay your first RMD until April 1 of the following year, you will need to take two RMDs in that year—your first and your second—which could have serious tax implications.

To avoid potential tax spikes, most advisors recommend not delaying your first RMD unless there’s a compelling reason.

How Do RMDs Work?

RMD amounts are based on your account balance and your age. Each year, the IRS publishes the Uniform Lifetime Table, which provides a life expectancy factor used to calculate your RMD.

Here’s a simplified example:

• You are 73 years old in 2025.
• Your IRA balance on December 31, 2024, is $1,000,000.
• According to the table, the distribution factor is 5.

Your RMD = $1,000,000 / 26.5 = $37,736

Each year, the divisor gets smaller, which means the percentage of your account that must be withdrawn increases.

Your IRA custodian (e.g., Schwab, Fidelity, etc.) typically calculates your RMD for you, so you don’t need to worry about doing the math manually. But it’s good practice to verify that it’s done correctly.

RMD Tax Rules and Penalties

RMDs are taxed as ordinary income at both the federal and state level. Since these distributions are from tax-deferred accounts, every dollar withdrawn is fully taxable in the year it’s received.

You have two main options to handle taxes:

1. Withhold taxes directly from the RMD
2. Make estimated tax payments quarterly

Failing to plan ahead can lead to large tax bills and unnecessary stress. That’s why retirement tax planning is so important.

What if You Miss Your RMD?

Missing your RMD triggers a penalty:

• 25% of the amount you failed to withdraw
• Reduced to 10% if corrected within two years and reasonable cause is provided

The penalty used to be 50%, so recent changes have made it less severe—but it’s still best to avoid the risk entirely by staying on top of your RMD schedule.

RMD and Charitable Giving: The Power of QCDs

If you’re charitably inclined and don’t need the RMD funds for personal spending, consider a Qualified Charitable Distribution (QCD).

• A QCD allows you to directly transfer up to $100,000 per year from your IRA to a qualified charity.
• The amount counts toward your RMD but is not included in your taxable income.

This strategy can lower your Adjusted Gross Income (AGI), which may reduce Medicare premiums and other tax-related thresholds. It’s an excellent tool for those who want to give back and minimize their tax liability.

What to Do with RMDs You Don’t Need

A common frustration we hear from clients is: “Ok, I satisfied my RMDs, but I don’t need this money. What do I do with it?”

Here’s three common options:

1. Spend it: Use it for travel, family gifts, or hobbies
2. Reinvest it: Open a brokerage account and invest the funds in a diversified portfolio
3. Donate it: As mentioned above, use a QCD to reduce your taxable income

⚠️ Important: You cannot reinvest RMDs back into your IRA or convert them to a Roth IRA. Once the funds are withdrawn, they cannot be re-contributed.

Roth IRAs and RMDs

Unlike traditional IRAs, Roth IRAs are not subject to RMDs for the original account owner.

This is one of the reasons Roth conversions have become a powerful tax-planning tool. By moving funds from a traditional IRA to a Roth, you pay taxes now, but avoid RMDs in the future.

Less RMD means:

• Greater control over your taxable income
• Lower chance of Medicare IRMAA surcharges
• Better tax management in retirement

To learn more, read the article “401K Rules in Retirement After Reaching Age 50“.

Planning Strategies Around RMDs

Understanding how RMDs work is just the start. Here are a few proactive strategies for navigating RMDs with confidence:

• Start tax planning early: Roth conversions between retirement and RMD age can help you reduce future tax burdens
• Monitor income thresholds: RMDs can impact taxation on Social Security or Medicare surcharges
• Work with a financial planner: Ensure your withdrawal strategy aligns with your retirement goals

For folks that work with Peace of Mind Wealth Management, RMDs and tax strategy are included in your Peace of Mind Pathway, a structured retirement planning process that simplifies investment, income, and tax decisions.

Tax strategy is a huge component of achieving peace of mind in retirement. RMDs are an important part of the retirement tax strategy conversation. Schedule your complimentary 15 minute call with us to get started on your RMD questions.