RMD Requirements: Potential Pit Falls
December 3, 2025
If you have a traditional IRA or a pretax workplace retirement plan—such as a 401(k) or 403(b)—the IRS requires you to begin taking required minimum distributions (RMDs). Your first withdrawal must be made by April 1 of the year after you reach age 73.
One exception applies to employer plans: if you're still employed past age 73 and you own less than 5% of the company sponsoring the plan, you can postpone RMDs from that specific plan until the year you retire. After your initial withdrawal, every later RMD must be taken by December 31 each year.
RMDs exist because tax-deferred accounts are meant to be temporary shelters from taxes—not permanent ones. The SECURE Act raised the starting age for RMDs from 72 to 73 in 2023, and it climbs again to 75 in 2033. Missing your deadline is costly: failing to take enough out triggers a penalty equal to 25% of the amount you should have withdrawn. That penalty can drop to 10% if you correct the mistake and file an amended return within two years.
“While you were working and contributing to retirement accounts, your investments grew on a tax-deferred basis,” explains Monte Warren, wealth management analyst at Fidelity. “Eventually, the IRS requires you to start drawing down those funds and paying taxes on any pretax contributions and earnings.”
If the thought of taking money out of your carefully built nest egg makes you uneasy, you’re not alone. Many new retirees are unsure of when the withdrawals start, how the IRS calculates the amount, what taxes apply, and what happens after the funds land in their bank account.
For IRA owners especially, staying organized is key. Your financial institution may send reminders or offer automatic RMD withdrawals, but you’re ultimately responsible for ensuring every requirement is met. Workplace plans may operate under different administrative rules, so it’s important to understand how your plan handles distributions.
With a little preparation, the annual RMD process becomes routine. Below are answers to the most common questions retirees ask.
When do RMDs begin?
RMDs are required starting in the year you turn 73, and the annual deadline is December 31. You do have the option to delay your first withdrawal until April 1 of the following year—but doing so means you’ll take two distributions in that same calendar year, which could increase your taxable income.
RMDs generally cannot be postponed. The only exceptions in recent history were one-year waivers granted in 2009 and 2020. Still-working employees may defer withdrawals from their current employer’s retirement plan if they don’t own 5% or more of the company and if the plan allows. Traditional, SEP, and SIMPLE IRA owners do not qualify for this exception.
Roth IRAs are exempt from RMD requirements while the account owner is alive, and Roth funds inside workplace plans are exempt beginning in 2024—unless the account is inherited.
Do you really have to take money out?
Yes. Traditional IRAs, 401(k)s, 403(b)s, SEP IRAs, and SIMPLE IRAs all require RMDs. In exchange for years of tax-deferred growth, you must eventually withdraw the funds and pay ordinary income taxes on the taxable portion. Roth IRAs and Roth workplace plan balances (other than inherited accounts) are not subject to RMDs during the owner’s lifetime.
What happens if you miss an RMD?
The IRS charges a stiff penalty for late or insufficient RMDs. If you fail to withdraw the required amount by December 31, the penalty is typically 25% of the shortfall. Correcting the mistake within two years reduces the penalty to 10%. Accuracy and timing matter.
How are RMDs calculated?
Your RMD is based on your prior year’s December 31 account balance, your age, and a life expectancy factor provided by the IRS. The balance is divided by the appropriate factor to determine how much must be withdrawn.
For example, if you turn 73 this year and your IRA balance was $100,000 at the end of last year, your life expectancy factor (from the IRS Uniform Lifetime Table) might be 26.5. Your RMD would be:
$100,000 ÷ 26.5 = $3,773.58
Life expectancy factors are updated annually, so your RMD will change each year. You can reference the IRS Uniform Lifetime Table or Joint Life Expectancy Table, depending on your situation, or use an online RMD calculator for guidance.
Do you take an RMD from each account?
It depends on the type of account:
● IRAs and 403(b)s:
● Calculate the RMD for each account separately, then add them together. You may withdraw the entire amount from a single IRA or 403(b) if that’s easier.
● 401(k)s and other employer-sponsored plans:
● These must be handled individually. If you have multiple 401(k)s, each requires its own RMD. Some plan administrators automatically distribute the RMD; others require you to request it.
If your spouse is more than 10 years younger and is your sole beneficiary, you may be able to use the Joint Life Expectancy Table, which typically lowers your required withdrawal.
How do you take the money out?
You have several choices:
1. Withdraw cash.
Sell investments to generate the cash amount you need. Many retirees sell proportionally across their portfolio to maintain their target allocation. Mutual fund trades settle at the next calculated net asset value after markets close.
2. Transfer assets in kind.
Prefer to stay invested? You can move shares directly from your IRA to a taxable account without selling them. Taxes still apply based on the value at the time of transfer, so you may need separate funds to cover withholding.
3. Donate through a Qualified Charitable Distribution (QCD).
If you’re charitably inclined, a QCD allows you to send up to $108,000 (2025 limit) directly to a qualified charity and have it count toward your RMD without increasing your taxable income. The SECURE Act 2.0 also permits a one-time QCD of up to $54,000 to fund a charitable gift annuity.
4. Set up automatic withdrawals.
Most custodians can calculate and distribute RMDs for you on a set schedule.
5. Use an income annuity.
Income annuities can automatically satisfy RMD rules on the assets used to purchase them. Under SECURE Act 2.0, certain annuity rules offer additional aggregation benefits.
6. Consider a QLAC.
A Qualified Longevity Annuity Contract allows you to delay RMDs on a portion of your IRA until as late as age 85.
How do RMDs impact taxes?
RMDs are taxed as ordinary income and may affect:
● your tax bracket
● the taxation of Social Security benefits
● the cost of Medicare premiums
If you complete an in-kind transfer, the taxable amount is based on the asset’s value at the time of the transfer. Withholding can be handled during the withdrawal, with a federal minimum of 10%. Your tax advisor can help determine the best approach.
What can you do with the withdrawn funds?
Once your RMD is taken in cash, you’re free to use it however you choose—covering living expenses, reinvesting in a brokerage account, or even treating yourself to something enjoyable.
Understanding these rules empowers you to build a retirement income strategy that works for your long-term goals. As the year-end deadline approaches, it’s wise to review your RMD plan with a tax or financial professional to avoid surprises and keep your retirement plan running smoothly.
Sources:
https://www.fidelity.com/learning-center/personal-finance/first-rmd-requirements
Disclosure:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.