A new year means a reset on the required minimum distribution (RMD) clock for many retirees. Ignoring your RMD obligation isn't smart, but in many cases, those who don't take them simply forget. Unfortunately, the IRS doesn't consider that a good excuse, and you'll be subject to penalties.
The penalty for failing to take the appropriate RMD is 25% of the amount that was supposed to be withdrawn. If you correct the mistake within two years, the penalty can be reduced to 10% of the non-withdrawn amount.
According to Vanguard research, around 7% of its IRA holders missed their RMDs in 2024, averaging a penalty of more than $1,100. It estimates that missed RMDs from IRAs could result in up to $1.7 billion in penalties each year.
Ideally, you won't need to know about penalties because you'll take your RMDs, but just in case, we've got a quick checklist.
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A three-part checklist
Here are three of the main things you should do at the beginning of each year to help you with RMDs:
- Identify accounts you own with RMDs: These are only accounts like 401(k)s and most types of IRAs. You won't have to worry about it with a Roth 401(k) or Roth IRA.
- Determine how much your RMDs will be: To find your RMD, divide your account value(s) at the end of the previous year by your life expectancy factor (which the IRS provides).
- Consider the charity loophole: You can donate directly to a charity from your IRA and it will count toward your RMD but won't be counted as taxable income.
When should you take your RMDs?
RMDs are due on Dec. 31 each year. In the year you turn 73, they're due by April 1 of the following year, and you'll still need to take RMDs for that following year, as well.
For example, if you're turning 73 this year, you'll have until April 1, 2027, to take your first RMD. You'll also then need to take 2027's RMD by Dec. 31, 2027.
As long as you take the full amount by your deadline, it doesn't matter when you take them during the year. Some people choose to take them early to get it over with, while others wait until later in the year so their investments have more time to potentially grow.
If you're concerned about forgetting your RMDs, withdrawing the full amount into a bank or brokerage account and then setting up automatic transfers could help treat them like a paycheck.
Correcting a mistake
In some cases, the IRS will drop the penalty entirely if you can provide "reasonable cause." It decides on a case-by-case basis, but if you feel as though this may apply to you, fill out Form 5329 and attach your explanation letter.
