Your retirement savings belong to you, but as long as you keep them in a tax-advantaged retirement account, the Internal Revenue Service (IRS) still gets some say in what you do with them.
The IRS can require you to withdraw money from your savings each year or face steep tax penalties. These mandatory annual withdrawals are known as required minimum distributions (RMDs) and typically begin in the year you turn 73.
You technically have all year to take your RMD -- and you have until April 1 of the following year to make your first one. But some people like to take theirs early in the year so they can get it out of the way. Here are some factors to consider when deciding the right strategy for you.
Image source: Getty Images.
Take your 2024 RMDs as soon as possible if you haven't already
Those who turned 73 last year and didn't take an RMD during 2024 should absolutely take their 2024 RMD in March. If you do this before the April 1, 2025, deadline, you won't get hit with the 25% tax penalty on the amount you should have withdrawn.
If you were over 73 last year and forgot to take your 2024 RMD, take it now. Then, file an amended 2024 tax return with the IRS. You could still owe a penalty, but it may be reduced to 10% if you do this in a timely manner.
In either of these cases, you'll have to take two RMDs this year: one for 2024 and one for 2025. To calculate them, you usually take your account balance at the end of the previous year -- 2023 and 2024, respectively -- and divide it by the distribution period for your age at the end of the year in question in the IRS Uniform Lifetime Table.
For example, if you turned 73 in 2024 and your IRA balance was $100,000 at the end of 2023 and $90,000 at the end of 2024, your RMDs for 2024 and 2025, respectively, would be $3,774 ($100,000 divided by the 26.5 distribution period for 73-year-olds) and $3,529 ($90,000 divided by the 25.5 distribution period for 74-year-olds).
You'll have to do this for each account that requires an RMD -- all except Roth accounts and your current workplace retirement plan if you're still working and own less than 5% of the company. You may take all your IRA RMDs out of a single IRA if you'd like, but you must take an RMD from each 401(k), unless it meets one of the two exceptions described above.
You have more flexibility with your 2025 RMDs
There's no rush to take your 2025 RMDs. You have until Dec. 31, 2025, if you're over 73, or April 1, 2026, if you'll turn 73 this year.
It comes down to what works best for you. If you're worried you'll forget about your RMDs, taking them early makes sense. You may also want to do this if you're concerned about the value of your portfolio taking a dip later in the year.
On the other hand, if you want to keep your savings invested for longer to have a few more months to grow, waiting until later in the year could make sense. This could also be a smart play if you're worried that a large influx of cash right now could tempt you into overspending.
Another option is to split your RMDs evenly throughout 2025. Figure out how much you need to withdraw per month, subtract any amounts you've already withdrawn this year, and divide the remainder among the months left in the year.
Don't feel that you're limited to just your RMDs, either. There's no rule against withdrawing more than your RMD if you need the extra money. However, that could increase your tax liability.
