Happy Halloween! As I was closing down my garden for winter recently—putting the beds to rest, storing tools for the season—I had a thought: Required Minimum Distributions are a lot like Halloween. They show up every year whether you're ready or not. And if you're not prepared, they can be downright frightening.
The Ghosts of RMDs Past: Common Mistakes
Let me share some real retirement horror stories (names changed to protect the innocent).
The Double Distribution Trap: Margaret turned 73 in June 2024 and delayed her first RMD until March 2025—perfectly legal since you have until April 1st of the following year. But she also had to take her second RMD by December 31st, 2025. Two distributions in one tax year pushed her into a higher bracket, costing an extra $8,000 in taxes.
The lesson? Take your first RMD by December 31st of the year you turn 73 to split distributions across two tax years.
The Forgotten IRA: Tom had three IRAs from different employers. He took RMDs from two but forgot the third. The 25% penalty cost him $4,500. While you can aggregate your IRA RMDs and take the total from one account, you cannot do this with 401(k)s—each requires a separate RMD.
The Inherited IRA Nightmare: Starting in 2025, if you inherit an IRA from someone who already started RMDs, you must take annual distributions during years one through nine AND empty the account by year ten. The IRS grace period for 2021-2024 is over.
Current RMD Rules for 2025
If you were born between 1951 and 1959, you start RMDs at age 73. Born in 1960 or later? Age 75. The penalty for missing an RMD is 25% of the amount not withdrawn (reduced to 10% if corrected within two years).
Your RMD is calculated by dividing your December 31st account balance by an IRS life expectancy factor. At age 75 with $500,000, that's about $20,325 (4%). By age 85, you're withdrawing nearly 6.7% annually.
Good News: Since 2024, Roth 401(k)s no longer require RMDs during your lifetime—a significant change that allows continued tax-free growth.
The Sweet Strategy: Qualified Charitable Distributions
Here's the treat: If you're 70½ or older, you can donate up to $108,000 directly from your IRA to charity in 2025 (indexed for inflation from $100,000). The money goes straight to charity, doesn't count as income, satisfies your RMD, and doesn't require itemizing.
A client with a $50,000 RMD who donates $15,000 annually to charity now does a $15,000 QCD, taking only $35,000 as taxable income. This saves about $5,800 in taxes and may help reduce Medicare premiums by lowering adjusted gross income.
With new tax law changes limiting itemized charitable deductions to amounts exceeding 0.5% of income, QCDs are more valuable than ever. But timing matters—use the "first dollars out" rule by making QCDs before taking other distributions, and meet the December 31st deadline.
Strategies to Reduce Future RMDs
Roth Conversions: Between ages 59½ and 73, convert traditional IRA funds to Roth IRAs. Pay taxes now at current rates to reduce future RMDs and avoid higher brackets later. (if you have multiple IRAs, discuss this strategy first with an advisor).
Early Withdrawals: After 59½, there's no early withdrawal penalty. If you're in a low tax bracket before RMDs start, consider strategic distributions to avoid larger future RMDs that push you into higher brackets.
Still Working: If you're 73 and still employed (and not a 5% owner), you can delay RMDs from your current employer's 401(k) until retirement—though old 401(k)s and IRAs still require distributions.
Your Halloween Action Plan
- Turning 73 in 2025? Born in 1952, your first RMD is due by April 1st, 2026—but consider taking it by December 31st, 2025 to avoid doubling up.
- Already taking RMDs? Review tax withholding for accuracy.
- Charitably inclined? Set up QCDs before December 31st (you can start at 70½).
- Inherited an IRA? Verify if you need annual distributions starting in 2025.
- Approaching 73? Discuss Roth conversion strategies with your CFP®.
Just like checking Halloween candy, review your RMD calculations with a professional—the penalties are too steep to guess.
Don't Let RMDs Scare You
RMDs are part of retirement's annual ritual, like garden seasons. With proper planning—especially QCDs that support causes you care about while reducing taxes—they can work in your favor.