Understanding RMDs in 2025: What Retirees and Beneficiaries Need to Know

Required Minimum Distributions (RMDs) are one of the most important retirement tax rules - and one of the most confusing. With recent changes from the SECURE Act, SECURE Act 2.0, and updated IRS guidance, the rules for 2025 look very different from a few years ago.

This article explains when RMDs start, how they are calculated, how Roth vs. Traditional accounts differ, and what to expect if you inherited an IRA.

🟢 1. What Are RMDs - and Why Do They Matter?

An RMD is the amount the IRS requires you to withdraw each year from your tax-deferred retirement accounts to ensure taxes are eventually paid.

RMDs apply to:

🔹 Traditional IRA

🔹 SEP IRA

🔹 SIMPLE IRA

🔹 401(k) and Roth 401(k)

🔹 403(b), 457(b), TSP

🔹 Inherited IRAs (Traditional & Roth)

RMDs do not apply during your lifetime to:

🔹 Roth IRAs

🔹 Roth 403(b) and Roth 401(k) beginning in 2024 (SECURE 2.0)

🟢 2. The RMD Age in 2025 (SECURE Act 2.0 Rules)

Recent law changes created a tiered RMD age schedule.

RMD Beginning Age:

🔹 Born 1951–1958 → RMD age is 73

🔹 Born 1960 or later → RMD age is 75 (starting in 2033)

This means:

✔ If you turned 73 in 2024 → first RMD due April 1, 2025✔ If you turn 73 in 2025 → first RMD due April 1, 2026

🟢 3. First-Year Rule: Should You Delay Your First RMD?

You are allowed to delay your first RMD until April 1 of the following year.

But delaying means:

🔹 You take two RMDs in one year, which can

• Push you into a higher tax bracket

• Increase Medicare premiums (IRMAA)

• Increase Social Security taxation

• Increase capital gains exposure

  
  

Most high-income retirees should NOT delay the first RMD.A tax projection is essential.

🟢 4. Which Accounts Require RMDs - and Which Don’t?

Accounts that DO require RMDs:

🔹 Traditional IRA

🔹 SEP IRA

🔹 SIMPLE IRA

🔹 401(k) & 403(b) (rollover or employer plan)

🔹 Government Thrift Savings Plan (TSP)

🔹 Inherited IRAs (Traditional or Roth)

Accounts that DO NOT require RMDs:

🔹 Roth IRA (for original owner)

🔹 Roth 401(k) as of 2024

🔹 After-tax brokerage accounts

🔹 HSAs (but withdrawals have their own rules)

🟢 5. How RMDs Are Calculated (The IRS Table System)

RMDs are calculated using this formula:

RMD = Account Balance (12/31 prior year) ÷ Life Expectancy Factor

The IRS publishes three tables:

1. Uniform Lifetime Table

Used by most retirees.

2. Joint Life & Last Survivor Table

Used if your spouse is your sole beneficiary and is 10+ years younger.

3. Single Life Table

Used for:

🔹 Inherited IRAs

🔹 Certain trusts treated as beneficiaries

🔹 Stretch-eligible beneficiaries

Key Characteristics:

🔹 RMD percentages increase each year as life expectancy decreases

🔹 RMDs grow rapidly after age 80

🔹 Large balances in IRAs will heavily increase taxable income later in retirement

Example:A 73-year-old → divisor ~26.5A 90-year-old → divisor ~12.2 (double the effective distribution)

🟢 6. Penalties for Missing RMDs (2025 Rules)

The penalty has been reduced but remains significant.

Current Penalty:

🔹 25% tax on any RMD not taken

🔹 Reduced to 10% if corrected within 2 years

🔹 Penalty may be fully waived if:

• You correct the mistake

• You explain reasonable cause

• You file Form 5329

  
  

The IRS has been relatively lenient when errors are corrected proactively.

🟢 7. Roth IRA vs. Roth 401(k): Huge Changes After 2024

A. Roth IRA (Original Owner):

🔹 No RMDs ever

🔹 No lifetime distribution required

🔹 Excellent for estate planning

B. Roth 401(k) (BIG CHANGE):

Starting 2024, Roth 401(k)s no longer require RMDs during the owner’s lifetime.

Previously, owners had to roll Roth 401(k) funds into a Roth IRA to avoid RMDs.This is no longer necessary.

🟢 8. Inherited IRA Rules in 2025 — SECURE Act vs. SECURE Act 2.0

These rules are the most misunderstood in all of retirement planning.

A. If you inherited before 2020

You can use stretch RMDs for life.

B. If you inherited in 2020 or later

SECURE Act rules apply:

There are three categories of beneficiaries:

🟢 Category 1: Eligible Designated Beneficiaries (EDBs)

EDBs may still use stretch RMDs, including:

🔹 Surviving spouse

🔹 Disabled individuals

🔹 Chronically ill individuals

🔹 Beneficiaries less than 10 years younger

🔹 Minor children (until age of majority)

🟢 Category 2: Most Non-Spouse Beneficiaries : The 10-Year Rule

Most adult beneficiaries must:

🔹 Drain the entire account by year 10🔹 AND possibly take annual RMDs in years 1–9

IRS confirmed in 2024 guidance that ifthe original owner had begun RMDs, thenthe beneficiary must also take annual RMDs.

(One of the most confusing IRS rule clarifications ever.)

🟢 Category 3: Non-Designated Beneficiaries

Includes:

🔹 Estates

🔹 Charities

🔹 Non-qualifying trusts

Rules depend on whether the original owner died before or after RMD age.

🟢 9. Special Cases Most People Don’t Know About

Still Working Exception (401(k))

If you are age 73+ AND:

🔹 Still working for the employer sponsoring the plan

🔹 Do not own more than 5% of the company

You may delay RMDs from that employer’s 401(k).

Multiple IRA Rule

You can combine RMDs across IRAs and take from any one IRA.

Multiple 401(k) Plans

RMDs cannot be combined — must be taken from each plan individually.

403(b) Plans

Can be aggregated, like IRAs.

Annuities Within IRAs

Have their own RMD rules, often requiring professional calculation.

🟢 10. Tax Strategies to Reduce Lifetime RMD Burden

RMDs increase taxable income — which affects:

🔹 Medicare IRMAA

🔹 Social Security taxation

🔹 Capital gains exposure

🔹 ACA subsidies (for early retirees)

🔹 Bracket creep

🔹 Net Investment Income Tax (NIIT)

The best strategies include:

🟢 A. Roth Conversions Before Age 73

Convert IRA funds to Roth early to:

🔹 Reduce future RMDs

🔹 Create tax-free income later

🔹 Smooth lifetime tax brackets

🔹 Reduce Medicare premiums

Often done between age 60–72 or after retirement but before RMDs start.

🟢 B. Qualified Charitable Distributions (QCDs)

If age 70½ or older, you can donate up to:

🔹 $100,000 per year per individual

🔹 Directly from your IRA to a qualified charity

QCDs:

🔹 Count toward your RMD

🔹 Result in zero taxable income

🔹 Reduce Medicare IRMAA

🔹 Don’t require itemizing

This is the single best tax strategy for charitably minded retirees.

🟢 C. Strategic Withdrawal Planning

Instead of letting IRA balances grow too large:

🔹 Withdraw modest amounts in your 60s

🔹 Stay in lower tax brackets

🔹 Prevent ballooning RMDs in your 70s & 80s

🟢 D. Use Brokerage Accounts & Capital Gains Planning

Withdrawals from taxable accounts don’t trigger RMDs.

A mix of:

🔹 IRA withdrawals

🔹 Roth withdrawals

🔹 Brokerage withdrawals

creates flexibility to stay in desired tax brackets.

🟢 E. Asset Location Strategy

Place:

🔹 Bonds → in IRA

🔹 High-growth assets → in Roth

To slow IRA growth (and RMD growth).

🟢 F. Delayed Social Security Strategy

Delaying Social Security:

🔹 Frees up room in the lower tax brackets

🔹 Enables larger Roth conversions pre-RMD

🔹 Improves tax efficiency in later years

🟢 11. RMDs for Business Owners With SEP and SIMPLE IRAs

Small business owners frequently miss this:

🔹 SEP IRAs and SIMPLE IRAs DO require RMDs

🔹 Even if you are still working

🔹 Even if you own the business

🔹 Even if you take no salary

Unlike a 401(k), the “still working” exception does NOT apply.

🟢 The Big Picture

RMDs are no longer a simple rule — they are a full tax strategy.Understanding when they start, how they interact with Medicare, Social Security, Roth accounts, and inherited IRAs can save retirees thousands per year and protect assets for heirs.

At Pacific Data / Pacific Taxes & Investments, we help clients build a multi-year RMD strategy that includes:

🔹 Roth conversion planning

🔹 QCD planning

🔹 RMD timing optimization

🔹 Beneficiary planning

🔹 Tax-efficient withdrawal strategies

🔹 Inherited IRA guidance