If you turned 73 in 2024, the deadline for your required minimum distribution (RMD) from tax-deferred retirement accounts is April 1, 2025. While this gives you a slight reprieve until early next year, it’s generally wise to take your first RMD in the year you turn 73 because the deadline for subsequent years is Dec. 31, and delaying the initial RMD will nearly double the taxable distributions you must take in the year you turn 74.
Missing the RMD deadline could result in a 25% penalty on the shortfall amount. It’s possible you could reduce the penalty to 10% and pay the shortfall within two years if you make a timely correction. Prepare early every year to meet the year-end deadline.
RMD amounts due are specific to you and based on your attained age each year, the value of your account(s) at the prior year end, and the applicable factor from life expectancy tables provided by the IRS. Most tax-deferred accounts require RMDs, including profit-sharing, 403(b), 457(b), and 401(k) plans, as well as traditional IRAs, SEP IRAs, and SIMPLE IRAs. RMDs do not apply to Roth IRAs as of 2024, though they were required prior to 2024 for designated Roth accounts in 401(k) or 403(b) plans.1
In some cases, you can combine your RMDs and take the total amount from one account. For instance, you may be able to aggregate RMDs for traditional IRAs, SEP IRAs, and SIMPLE IRAs. If you have more than one 403(b) account, you can combine the RMD amounts of those accounts but not other types of accounts. You may want to consult with a financial professional before taking this approach. Note that any distribution from a Roth IRA does not count toward your RMD for other retirement plans.
Develop a strategy
There are many options for utilizing RMDs, from depositing them into a checking or savings account for immediate cash flow to reinvesting in the market via a taxable investment account. If you’re over age 70½ you can also explore making a qualified charitable distribution (QCD) of up to $105,000 tax-free to benefit a qualified charity and having it count towards your RMD amount. To learn more, go to: Mastering Your RMD Strategy.
If you own less than 5% of your employer and are still employed, you do not have to begin RMDs from your current employer’s plan until the year you retire. This is known as the “still working” exception, which permits the delay of RMDs. However, it does not apply to any IRAs or retirement plans from previous employers, therefore, RMDs from those plans must begin at 73. One possible strategy, if your employer allows it, is to perform a “reverse rollover” from your IRA to your current employer’s plan. This would eliminate the need to take RMDs since all your retirement plan money is with your current employer.
Start now
Your Mercer Advisors wealth advisor is ready to help with processing your RMDs by year end and updating tax and cash flow strategies for the coming year, as necessary. If you need to fulfill your RMD obligations for this year, contact your Mercer Advisors wealth advisor as early as possible in December, to be sure the distributions can be fully processed by Dec. 31. Do not wait until the last week of the year as delays could result in large penalties!
Not a Mercer Advisors client and want to explore having a solid financial plan in retirement? Let’s talk.
- “Required Minimum Distributions (RMDs),” IRS, 2024.
