If you have a traditional IRA, 401(k), 403(b), SEP IRA, or SIMPLE IRA, understanding Required Minimum Distributions (RMDs) and the current RMD Rules is essential. Recent changes to retirement tax laws have made these rules more complex, and mistakes can be costly. These updates to the RMD Rules set the timeline for when you start withdrawals, dictate how much you must take, and outline the consequences if you miss a deadline.
Many retirees assume their accounts will automatically follow the correct rules. In reality, even a small misunderstanding can trigger large tax bills and avoidable penalties. Knowing the updated rules now can help you protect your retirement savings, reduce unnecessary taxes, and avoid financial stress later.
What Has Changed in the RMD Rules
The starting age for RMDs has increased from 72 to 73 for most individuals. This update applies differently depending on your year of birth. If you turn 73 in 2025, you must begin taking RMDs this year. Future retirees may see the RMD starting age increase again, potentially to age 75, depending on current law.
This change allows retirement accounts to grow longer without paying tax right away. However, the added complexity has created confusion for many account holders who are unsure when their first withdrawal is actually due.
You have the option to wait until April 1 of the year after you reach the required age to take your first RMD. While this flexibility can be helpful, it often results in taking two taxable withdrawals in the same year, which can significantly increase your total taxable income and push you into a higher tax bracket.
In the years that follow, make sure to take your RMDs by December 31.
How RMD Amounts Are Calculated
RMD amounts are based on a combination of your retirement account balance and IRS life expectancy tables. The calculation uses your account value as of December 31 of the prior year and divides it by a life expectancy factor determined by your age.
As you get older, the required percentage increases, which means your annual taxable withdrawals may rise over time even if your spending needs remain stable.
It is important to understand that while many financial institutions provide RMD estimates, the legal responsibility for taking the correct amount always remains with you. Even small miscalculations can lead to IRS penalties.
The Tax Risks of Getting RMDs Wrong
When RMDs are not handled correctly, the penalties can be severe. Failing to withdraw the full required amount can result in a penalty of up to 25 percent of the amount you should have taken. If you correct it promptly, you may reduce the penalty, but the process can still feel stressful and take time.
Beyond penalties, incorrect RMDs can affect other areas of your financial life. Large distributions can increase your Medicare premiums through income based surcharges, cause more of your Social Security benefits to become taxable, and unexpectedly raise your overall tax liability.
If you lack a clear plan, these ripple effects may cause long-term financial strain, yet proper guidance can keep it under control.
Special RMD Rules for Workplace Plans and Still-Working Exceptions
Not all retirement accounts follow exactly the same RMD rules. If you are still working past age 73 and participate in an employer sponsored retirement plan such as a 401(k) or 403(b), you may be able to delay RMDs from that specific plan as long as you do not own a significant portion of the company.
This “still-working” exception does not apply to traditional IRAs. Even if you are employed, IRAs are generally subject to RMDs once you reach the required age.
Understanding which accounts qualify for this exception can make a meaningful difference in your retirement income timing and tax planning. Without proper guidance, many retirees miss this opportunity or apply the rule incorrectly.
How Roth Accounts and Inherited Accounts Are Affected
Roth IRAs are not subject to RMDs during the original account owner’s lifetime. This makes them powerful estate and tax planning tools. However, Roth 401(k) and Roth 403(b) accounts follow different rules, and in some cases, you must take RMDs unless you transfer the funds to a Roth IRA.
Inherited retirement accounts follow a completely different set of rules. Most non-spouse beneficiaries have to withdraw the entire balance from an account they get within 10 years. This can create large tax bills if not carefully planned.
Because of these complex rules, it’s important to understand how current law applies to your specific type of account.
Why Proactive RMD Planning Matters
RMDs should not be treated as a once a year task. They are a critical part of your overall retirement and tax strategy. With thoughtful planning, you can manage your withdrawals in a way that minimizes lifetime taxes and preserves more of your retirement savings.
How Scout Tax Helps You Stay in Control
At Scout Tax, we help retirees and pre retirees navigate complex RMD rules with clarity and confidence. Our team carefully reviews your complete financial picture and builds strategies specific to your needs.
We help determine the exact year your RMDs must begin, calculate the correct withdrawal amounts, and ensure that every deadline is met. We also analyze your overall tax situation to identify opportunities to reduce unnecessary tax exposure while remaining fully compliant with IRS rules.
Take Charge of Your Retirement Taxes Today
Waiting until the last minute can cost you far more than time. The earlier you plan, the more options you have to protect your savings and reduce your long term tax burden.
Now is the time to connect with Scout Tax. Our experienced professionals are ready to review your retirement accounts, explain your RMD obligations in clear, simple terms, and create a personalized strategy designed to help you keep more of what you have earned.
Contact Scout Tax today to schedule your consultation and move forward with confidence.
