Aside from helping you proactively save and invest money for your senior years, retirement accounts like the 401(k), 403(b), and traditional IRA offer you the benefit of a tax break. When you contribute to any of them, that amount will lower your taxable income upfront (traditional IRA deductions depend on income and whether you or your spouse are covered by a workplace plan).
In return, the Internal Revenue Service (IRS) expects to eventually recoup the taxes from you when you make withdrawals from these accounts in retirement. To avoid a situation where someone doesn't make any withdrawals to avoid paying taxes, the IRS has required minimum distributions (RMDs) that begin in the year you turn 73 years old.
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A quick overview of how to calculate your RMD
Finding the exact amount of your RMD is a three-step process. First, you need ending balance(s) from the previous year for any relevant accounts.
From there, you'll look up the IRS life expectancy factor that corresponds to your age and marital status. For example, an unmarried retiree taking their first distribution at 73 would use a factor of 26.5.
The last step is to divide your account value(s) from step one by your life expectancy factor. This will give you your total RMD for the year.
With this basic understanding of the formula behind your RMD, here are the biggest recent rule changes to keep in mind for 2025.
1. No Roth account is subject to RMDs
The biggest difference between Roth and traditional retirement accounts is that Roth accounts don't allow you to deduct your contributions. Instead, you contribute after-tax money and get tax-free withdrawals in retirement.
Roth IRAs have always been exempt from RMDs, but now, this exemption applies to Roth 401(k)s and Roth 403(b)s, as well. This gives Roth account holders greater flexibility. Not having to take RMDs means you can allow the money in your Roth accounts to grow as long as you'd like. This makes it a great tool for passing on wealth to a beneficiary after you pass away.
2. Inherited IRAs now have different withdrawal rules
When you pass on an IRA to your heirs, it becomes an inherited IRA. The good news is that spouses typically have more withdrawal options when they inherit an IRA. The bad news is that it's not always straightforward.
One of the new changes for non-spouses is that if you receive an inherited IRA after 2019, you must completely empty the account within 10 years. If the original owner passed before their RMD requirement went into effect, beneficiaries can set up the distributions however they wish in that 10-year period. But if you inherit the account after someone already began taking RMDs, you must continue taking them annually until the account is emptied out (no later than year 10).
If you're the surviving spouse, you have two options: You can either keep the inherited IRA in your spouse's name and delay distributions until they would have reached RMD age or roll the IRA over into your name, effectively making it your account. Then, you would take RMDs when required, as if the account was originally yours. These options are only available to spouse beneficiaries, not non-spouses.
3. The penalty for not taking RMDs is much lower
Not taking your RMDs comes with consequences. Previously, if you didn't take your RMD, you would be subjected to a penalty of 50% of the amount you failed to withdraw. However, the penalty has been cut in half to 25%.
For example, if your RMD was $5,000 and you didn't take it, the penalty would now be $1,250 instead of $2,500. If you correct your mistake and take the RMD within two years, the penalty can fall to 10%, or $500 instead of $1,250 in this example.
Regardless of the reduced penalty, it's much better to take your RMD and avoid the trouble altogether.
