October 13, 2025October 15, 2025

How to Plan Ahead for Required Minimum Distributions (RMDs)

If you’ve built up savings in a traditional IRA or workplace plan like a 401(k) or 403(b), congratulations — you’ve taken advantage of years of tax-deferred growth. The trade-off? Eventually, the IRS requires you to start pulling money out. These withdrawals are referred to as required minimum distributions (RMDs).

Handled wisely, RMDs can be a smooth part of your retirement plan. Handled poorly, they can trigger higher taxes, penalties, or Medicare surcharges. Here’s what every retiree and business owner needs to know.

When Do RMDs Begin?

Start age – The current age is 73 but it will rise to 75 in 2033 for those born in 1960 or later.
First-year choice – You can take your first RMD in the year you reach the age requirement or delay until April 1 of the following year. Delaying means you’ll take two RMDs in that year, which may push you into a higher tax bracket.
Still working? – If you’re still employed, IRAs still require RMDs. For your current employer’s plan, you may be able to delay until retirement if you’re not a 5% owner and your plan allows it.
Roth accounts – Roth IRAs, Roth 401(k)s, and Roth 403(b)s are exempt from RMDs.

How Are RMDs Calculated and Taken?

Formula – Divide your prior year-end account balance by a life-expectancy factor from IRS tables.
Multiple accounts – IRAs can be aggregated and withdrawn from any IRA; however, each 401(k) must be handled separately.
Cash or in-kind – You can take your RMD in cash or transfer securities to a taxable account. The value on the transfer date counts toward your RMD and sets your new cost basis.

Smart Strategies for Managing RMDs

Choose a cadence – Monthly or quarterly withdrawals can feel like a paycheck. Taking RMDs later in the year keeps money invested longer, but be sure not to miss the December 31 deadline.
Use tax withholding – Have your custodian withhold federal and state taxes on your behalf. The IRS counts withholding as if paid evenly throughout the year, which can help avoid penalties.
Give through a qualified charitable distribution (QCD) – At age 70½ or older, you can transfer up to $108,000 (for 2025) directly from an IRA to a charity of your choice. A QCD satisfies your RMD and keeps it out of taxable income.
Shrink future RMDs – Before reaching RMD age, consider a partial Roth conversion in lower-income years or drawing down IRA assets earlier. Both strategies can reduce the size and tax impact of future RMDs.

What If You Miss an RMD?

The IRS penalty is steep — 25% of the shortfall (reduced to 10% if corrected in time) — if you miss an RMD. You’ll need to file Form 5329 to report the correction. Missing an RMD is one of the costliest mistakes in retirement planning — avoid it with a clear schedule and reminders.

Proactive Planning for RMDs

RMDs don’t have to be a burden. With proper planning, you can use them to manage taxes, support charitable causes, and provide a reliable income in retirement. The key is to start planning early — before you reach RMD age — so you can position yourself for flexibility and avoid costly surprises.