You loved the tax break you got when you made retirement account contributions. But now that you're old enough for required minimum distributions (RMDs), you might wish you had gotten the taxes out of the way years ago. Then, what's left in your accounts would be all yours alone.
If you took the tax breaks in past years, the government is going to make sure it gets its cut by forcing you to take money out of your accounts each year, beginning when you turn 73. Skipping RMDs carries a costly 25% penalty, so it's generally better to follow the rules.
This could lead to a bigger tax bill. But if you would rather avoid that, the IRS offers an alternative strategy that could be right for you.
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How the government calculates RMDs
Calculating your RMD is relatively straightforward, provided you know your account balance at the end of the previous year. Check with your plan administrator if you're unsure about this.
Divide the account balance by the distribution period next to your age in the IRS Uniform Lifetime Table. For example, if you're 75 as of Dec. 31, 2025, and your 401(k) balance as of Dec. 31, 2024, was $250,000, your RMD would be $250,000 divided by 24.6, giving you about $10,163.
If you've already withdrawn that much to cover your living expenses for the year, you've fulfilled your 2025 RMD. You can withdraw more if needed, but it's not required.
You also don't have to worry about taking RMDs from Roth accounts or from your current workplace plan if you're still working and own less than 5% of the company. In the latter case, you can defer RMDs from that account only until the year you retire.
If neither of these exceptions applies to you, you will need to withdraw your RMD amount that you haven't yet taken from your retirement account. But that doesn't mean you have to settle for a bigger tax bill.
Keep your tax bill low and help others at the same time
The IRS allows you to make a qualified charitable distribution (QCD) instead of an RMD if you're feeling generous. A QCD is a donation to a qualifying tax-exempt organization of an amount that's less than or equal to your RMD. You can donate up to $108,000 this way in 2025.
The catch is that you can't withdraw the money from your account and then give it to a charity. In that case, you might be able to write that off as a charitable donation if you itemize your tax deductions, but it won't be a QCD. For a true QCD, you must request that your plan administrator send the money directly to the charitable organization without giving it to you first.
You will have to forfeit some funds this way, but with a QCD, you don't have to worry about the money adding to your taxable income for the year. This can keep your tax bill more manageable, and depending on your other income, it may be enough to prevent you from moving up to the next tax bracket.
If you think a QCD could be right for you, start brainstorming about which organizations you might want to give to. Then, contact your plan administrator to learn how to initiate the process.
You have until Dec. 31, 2025, to complete your RMD for the year. If you turned 73 in 2025, you have until April 1, 2026, to make your first RMD. But it's best not to wait until the last minute. Get it out of the way before the holidays and follow up with your plan administrator to make sure everything went through correctly.
