Required minimum distributions, or RMDs, are one of those retirement rules that stay invisible for decades and then arrive with a tax bill attached.
If you turned 73 in 2025, the IRS expects you to start pulling money out of traditional IRAs and most workplace retirement plans, whether you need the cash or not.
You divide your account balance from December 31 of the prior year by an IRS life expectancy factor, and that number is your minimum withdrawal.
Miss it, and the penalty is 25% of the amount you should have taken, dropping to 10% if you correct the mistake within a two-year window.
What's tripping people up this year is the mismatch between RMD income and real life.
A retiree who doesn't need the money still has to withdraw it, pay income tax on it, and then figure out where to put it.
That's why so many advisors push qualified charitable distributions, which let you send up to $108,000 per person directly to charity in 2025 and keep that amount out of taxable income.
First-year RMDs come with a special option: you can delay your very first withdrawal until April 1 of the following year.
Sounds helpful, until you realize it stacks two taxable distributions into one calendar year and can push you into a higher bracket or trigger higher Medicare Part B premiums.
For anyone still working, there's a narrow exception.
If you're still employed and participating in a 401(k) at your current job, you may be able to skip RMDs from that specific plan until you actually retire.
That exception does not apply to IRAs, and it does not apply to old 401(k)s from former employers.
Roth IRAs have no RMDs during the owner's lifetime, which is a big part of why conversions have stayed popular.
Roth 401(k)s used to require withdrawals, but starting in 2024 they no longer do.
That change alone has shifted how some savers think about where to park money in their final working years.
The practical takeaway for households is to plan the withdrawal, not just the account.
Pulling $30,000 you don't need can bump you past an income threshold, raise your Medicare premiums, and make more of your Social Security taxable.
Running the numbers before December can matter more than the withdrawal itself.
If you have multiple IRAs, the IRS lets you calculate the total RMD across them and take it from just one.
That flexibility doesn't extend to 401(k)s, which must each be satisfied separately.
Getting this wrong is one of the most common and most avoidable penalty triggers.
Our take: RMDs are less a retirement milestone and more a tax coordination problem, and the households that treat them that way tend to keep more of their money.
Final Thoughts
The rule isn't going away, so the smart move is to build the withdrawal into your annual budget instead of letting December surprise you.