Social Security Alert – Retirees Must Meet This Requirement by July 1st to Avoid a 25% Penalty!

As 2025 approaches, retirees turning 73 in 2024 are on a critical financial countdown. The IRS has set a firm deadline of July 1, 2025 for taking your first Required Minimum Distribution (RMD) from retirement accounts. Miss it, and you could face a hefty 25% penalty—a painful hit to your savings if you’re not careful.

If you’re managing your own finances or working with an advisor, now’s the time to know how RMDs work and take action to avoid costly mistakes.

Quick Facts

Topic	Details
Deadline	July 1, 2025
Who’s Affected	Anyone turning 73 in 2024
Penalty for Missing It	25% of missed amount (can be reduced to 10% with correction)
Accounts That Require RMDs	Traditional IRAs, 401(k)s, 403(b)s, and similar tax-deferred accounts
Resource	IRS RMD Guidelines & Form 5329

What Are RMDs?

Required Minimum Distributions are mandatory withdrawals from tax-deferred retirement accounts like Traditional IRAs and 401(k)s. The IRS requires you to start taking these after a certain age so they can finally collect tax on money that’s grown tax-deferred over the years.

If you were born in 1951, you turn 73 in 2024, and that means your first RMD must be taken by July 1, 2025.

Note: RMDs do not apply to Roth IRAs (but did apply to Roth 401(k)s until 2024).

Why This Deadline Matters

While you have until July 1, 2025 for your first RMD, your second RMD for the 2025 tax year is still due by December 31, 2025. That means many retirees will need to take two withdrawals in the same year, which could:

• Push you into a higher tax bracket
• Increase your Medicare premiums
• Cause more of your Social Security to be taxed

Example

If your IRA is worth $200,000 on December 31, 2024:

• At age 73, the IRS divisor is 26.5
• Your RMD = $200,000 ÷ 26.5 = $7,547.17
• Miss this and pay a penalty of 25%, or $1,886.79
• Correct it with IRS Form 5329, and the penalty may drop to 10%

How to Meet Your RMD Requirement

You must take an RMD in 2025 if:

• You turned 73 in 2024
• You own a Traditional IRA, 401(k), or similar plan
• You’re not working (unless your plan allows RMD deferral while employed)

Calculate Your RMD Correctly

Use your account balance as of December 31, 2024 and divide by the factor from the IRS Uniform Lifetime Table.

• Multiple IRAs: You can combine the total RMD and take it from one or more IRAs
• 401(k)s: Each account requires its own RMD

Use tools like the Vanguard RMD Calculator or IRS worksheets to get accurate results.

Take the Withdrawal Before July 1, 2025

Don’t wait. Schedule it early to avoid issues with processing delays or holidays. Most financial institutions offer automated RMDs—ask your custodian if yours does.

Tax Side

RMDs are taxed as ordinary income. Taking two in one year could:

• Raise your total income
• Trigger higher Medicare premiums
• Make more of your Social Security taxable

Missed It? File Form 5329

If something goes wrong, file IRS Form 5329, explain the error, and show you’ve taken the correct amount. In many cases, the IRS waives the penalty.

Common Mistakes to Avoid

• Waiting too long: Processing delays can cost you
• Forgetting old accounts: Old 401(k)s still count
• Taking the wrong amount: Overdrawing doesn’t help—you still owe more if you under-distribute
• Thinking Roth IRAs need RMDs: They don’t, but Roth 401(k)s did until 2024

How Financial Experts Can Help

Feeling overwhelmed? A certified advisor can help you:

• Calculate the exact RMD for each account
• Coordinate withdrawals to avoid tax spikes
• File forms and avoid penalties

Firms like Vanguard, Fidelity, and Charles Schwab have online tools and real-time support to guide you through it all.

Final Tip

If you’re facing two RMDs in 2025, consider taking your first one in late 2024 to spread the tax hit across two years. Planning ahead could save you hundreds or even thousands in taxes.

FAQs