RMD Season Has Begun

As 2025 enters its final stretch, it's time for specific individuals to take their annual required minimum distributions from their non-Roth IRAs and 401(k)s balances. 

Commonly known as an RMD, these mandatory disbursements apply to all holders of qualified retirement accounts and begin the year the holder turns 73. However, distributions can be deferred the first year to the following April 1st if a holder chooses. For those not in their first year of RMD distributions, withdrawals must occur by December 31 of each year; otherwise, penalties apply for the missed distribution.

In addition to those who are 73 years or older, individuals who inherit a qualified retirement account may also be required to take an RMD, depending on whether the original account holder had reached the RMD age before their passing.

Generally, an advisor, employer-sponsored plan, or brokerage firm will calculate your RMD each year and send it to you when requested or automatically, since the penalty for failing to take it is 50% of the amount not taken.

Before the SECURE Act 2.0, 401(k) assets were subject to an RMD based on the account total, including Roth assets. Since these changes a couple of years back, Roth balances in 401(k)s are excluded, just as they are with IRAs.

Notably, the IRS views all pre-tax IRAs as one account when assessing an individual's annual RMD amount. Therefore, an individual can aggregate their RMDs from any number of their IRAs and take the withdrawal from one account or split it across many. However, with 401(k)s, an individual must take an RMD from each account since aggregation is not allowed.

For those who do not need the income generated by their annual RMD, they can elect to donate the money directly to a charity, thereby avoiding ordinary income taxes on the distribution. However, another common option is to reinvest the money once taxes are paid outside of their qualified retirement accounts, such as in a brokerage account or by funding a grandchild's 529 plan.

At Lundeen Abrams Advisors, we have already begun calculating and processing RMDs for our clients this year and anticipate finishing these payments by early December. If you are not a client of our firm and would like to learn more about how RMDs work, please get in touch with us to schedule an appointment so we can discuss your options. We will look forward to talking with you soon!