December 31 RMD Deadline: What to Know and What to Do

As the year comes to a close, an important financial deadline is approaching for many retirees and older adults. December 31 is the annual cutoff date for required minimum distributions (RMDs) from certain retirement accounts.

This deadline shouldn't be overlooked by those who have reached the age at which the IRS requires them to begin withdrawing from their tax-deferred savings.

So, here’s what you need to know (and do) if you have an RMD due by December 31.

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Required minimum distribution rules

RMDs are mandatory withdrawals from tax-advantaged retirement accounts that individuals must take once they reach a specific age. These accounts typically include traditional IRAs, 401(k)s, and similar accounts that allow funds to grow tax-free over time.

The rationale behind RMDs is that the government wants to ensure that retirement savings, which have benefited from tax deferrals, don't continue to grow indefinitely without being taxed.

Who’s impacted? Recent legislative changes have shifted the age at which RMDs start.

As of 2024, individuals who have turned 73 are generally subject to RMD rules. (It's worth noting that this age requirement is set to increase again to 75 in 2033.) Also, inherited IRAs have their own complicated RMD rules.

Year-end RMD deadline

While the first RMD can be postponed until April 1 of the year, following which you turn 73, subsequent annual RMDs must be taken by December 31 each year.

This end-of-year deadline is critical since failing to withdraw the correct amount by this date can result in substantial penalties.

• The amount you're required to withdraw is calculated based on your retirement account balance as of December 31 of the previous year and your life expectancy factor, as determined by IRS tables.
• Failing to withdraw the required amount by the deadline can result in a penalty of 25% of the amount not taken.

While this penalty has been reduced from the previous 50% due to changes in the SECURE 2.0 Act, it is still a substantial hit that can significantly impact retirement savings.

RMD: What to do now

• Review your account: Identify all retirement accounts subject to RMDs.
• Calculate your RMD: Determine the total amount you need to withdraw across all applicable accounts.
• Plan your withdrawal: Decide which account(s) you'll use to satisfy your RMD.
• Consider taxes: Understand how your RMD will affect your overall tax situation for the year.
• Take the distribution: Ensure the funds are withdrawn from your account(s) before the December 31 deadline.
• Keep records: Document your withdrawals for tax reporting purposes.

Note: When planning which account(s) to withdraw from, Kelly Regan, vice president and Certified Financial Planner™ with wealth management and advisory firm Girard, offers some insight.

“You can aggregate RMD distributions, meaning if you have two IRAs, you can withdraw the total RMD from one of the accounts — as long as the total RMD is taken, it is satisfied,” Regan says.

Also, with RMDs, you'll want to remember the following special circumstances.

Still Working Exception: If you're still employed past age 73 and don't own more than 5% of the company you work for, you might be able to delay RMDs from your current employer's retirement plan until retirement.

However, this “still working exception” doesn't apply to IRAs or plans from previous employers.

First RMD: For those who turned 73 this year and are facing their first RMD, remember that you have until April 1, 2025, to take this initial distribution.

However, delaying until April means you'll need to take two distributions in 2025 — one for 2024 and one for 2025 — which could have significant tax implications.

December Required Minimum Distribution: Bottom Line

The December 31 RMD deadline is a key date for many retirees. You can meet your obligations and avoid unnecessary tax penalties or common RMD mistakes by understanding the rules, planning, and taking timely action.

Consulting a tax professional or financial advisor can help navigate the complexities of RMDs and optimize your retirement income strategy.

Related

• Required Minimum Distributions Guide
• Seven Common RMD Mistakes to Avoid
• How Retirement Income is Taxed by the IRS