Big changes in RMDs in 2025: ways to save tax and how to avoid common mistakes

If you are close to retirement age or already managing your retirement funds, it’s very important to understand RMDs – Required Minimum Distributions. In 2025, major changes have been introduced that could affect your tax planning. Missing out on these changes might result in heavy penalties.

But don’t worry. With the right knowledge and a little planning, you can stay compliant, avoid costly mistakes, and save on taxes.

What Are RMDs?

RMD stands for Required Minimum Distribution – the minimum amount you must withdraw annually from certain retirement accounts, such as Traditional IRAs or 401(k)s, once you reach a specific age.

The purpose of RMDs is to ensure that the government eventually collects taxes on tax-deferred retirement savings.

What Is the RMD Starting Age in 2025?

According to the SECURE 2.0 Act, the starting age for RMDs in 2025 has increased to 73 years.

• If you turn 73 in 2025 (i.e., born in 1952), you must take an RMD that year.
• If you turn 75 in 2033 or later, your RMDs won’t begin until you are 75.

Which Accounts Are Subject to RMDs?

You must take RMDs from the following accounts:

• Traditional IRA
• SEP IRA
• SIMPLE IRA
• 401(k), 403(b), and other employer-sponsored retirement plans

RMDs are NOT required from:

• Roth IRAs (during the account holder’s lifetime)
• Roth 401(k) accounts starting in 2024 (per SECURE 2.0)

How to Calculate RMDs

The IRS provides a Uniform Lifetime Table to calculate your RMD. Your account balance is divided by a “divisor” based on your age.

Example:

• Account balance on December 31, 2024 = $500,000
• IRS divisor for age 73 = 26.5
• RMD = $500,000 ÷ 26.5 = $18,868

You must withdraw at least this amount by December 31, 2025.

Penalty for Missing an RMD

If you miss your RMD:

• The penalty is now 25% of the amount not withdrawn (reduced from the previous 50%)
• If corrected within two years, the penalty is reduced further to 10%

To avoid penalties, make sure to withdraw your RMD on time each year.

New Tax-Saving Strategies for RMDs in 2025

There are smart ways to reduce the tax burden of RMDs. These strategies can help you keep more of your retirement income.

1. Qualified Charitable Distributions (QCDs)

• If you are 70½ years or older, you can donate up to $100,000 annually from your IRA to a qualified charity.
• The donation is tax-free and counts toward your RMD.

2. Roth IRA Conversion

• You can convert part of your Traditional IRA to a Roth IRA, paying tax now but avoiding RMDs and future taxes.
• Ideal for people expecting higher income or tax rates later.

3. Qualified Longevity Annuity Contracts (QLACs)

• With a QLAC, you can defer RMDs until age 85.
• This helps reduce your taxable withdrawals now.

4. Voluntary Withdrawals in Low-Tax Years

• If you’re retired but not yet required to take RMDs, consider withdrawing funds during low-income years to avoid jumping tax brackets later.

Common Mistakes to Avoid with RMDs

Here are some of the most frequent errors people make with RMDs, and how to avoid them:

1. Missing the RMD Deadline

Solution: Set up automatic withdrawals or schedule reminders through your bank or financial advisor.

2. Miscalculating the RMD

Solution: Use the IRS RMD Calculator or speak with a financial planner to ensure you’re using the right divisor.

3. Ignoring Multiple Accounts

Solution: If you have more than one retirement account, you may need to calculate RMDs for each separately (unless they are all IRAs).

4. Confusing Roth IRAs with Traditional IRAs

Solution: Roth IRAs do not have RMDs during the owner’s lifetime, but inherited Roth IRAs may have different rules.

5. Misunderstanding Spousal Inheritance Rules

Solution: A spouse inheriting an IRA can elect to treat it as their own, potentially delaying RMDs and gaining tax benefits.

6. Delaying the First RMD and Facing Double Taxation

Solution: If you delay your first RMD until April 1, 2026, you’ll also have to take your 2026 RMD by December 31, 2026 — meaning two withdrawals in one tax year.

Frequently Asked Questions (FAQs)

Conclusion – Understand RMDs and Avoid Taxes in 2025

If you are nearing retirement or already retired, understanding how RMDs work is critical for managing your tax obligations and preserving your wealth.

By following the steps and strategies discussed in this guide, you can:

• Avoid penalties
• Optimize withdrawals
• Save money on taxes
• And ensure long-term financial security

Withdraw your retirement money smartly — so it continues to support you for the rest of your life.