Key Takeaways
- RMDs begin at age 73 for most current retirees, with your first distribution due by April 1 of the year after you turn 73.
- Missing RMD deadlines triggers a 25% penalty on the amount not withdrawn; however, the penalty decreases to 10% if corrected within two years.
- California residents pay state income tax of 1% to 13.3% on RMD withdrawals, in addition to federal taxes, making strategic planning a must.
- You can satisfy RMDs through charitable giving by directing up to $108,000 annually from your IRA to qualified charities tax-free.
- Professional guidance can help optimize timing and minimize taxes while complying with complex federal and state rules.
When you turn 73, something important happens with your retirement accounts. After years of letting your money grow tax-free, you’ll need to start taking annual withdrawals called required minimum distributions (RMDs). Think of RMDs as a natural next step in your retirement journey, where you’re moving from saving and growing your money to actually using it to support your lifestyle.
These withdrawals aren’t just a requirement; they’re an opportunity to thoughtfully plan how you’ll access the wealth you’ve built over decades. With the right approach to retirement planning, you can make RMDs work in support of your retirement goals.
What is an RMD?
RMDs are mandatory annual withdrawals from tax-deferred retirement accounts, such as traditional IRAs, 401(k)s, 403(b)s, and other qualified retirement plans. Tax-deferred means you didn’t pay taxes when you put the money in, and it continued to grow without being taxed along the way.
Here’s why RMDs exist: Since you didn’t pay taxes when contributing to these accounts, you need to pay them when you take the money out. The government requires you to withdraw a minimum required distribution each year once you reach age 73, and those withdrawals become taxable income in the year you receive them.
When Do You Need to Take Your RMDs?
The timing depends on when you turn 73:
Your first RMD: Due for the year you turn 73 but you can take it anytime after your 73rd birthday during that year or delay it until April 1 of the following year.
For example, if you turn 73 in August 2025, you can take your first RMD anytime after your birthday or wait until April 1, 2026.
All subsequent RMDs: Must be taken by December 31 each year.
Here’s your required minimum distribution age based on when you were born:
- 1951–1959: RMDs begin at age 73
- 1960 or later: RMDs begin at age 75 (starting in 2033)
For employer-sponsored retirement plans like 401(k)s, you may be able to delay RMDs until you actually retire if you’re still working and don’t own more than 5% of the company. This special rule for people still working doesn’t apply to IRAs — you have to take RMDs at age 73 regardless of your employment status.
Are There Penalties for Not Taking RMDs?
Yes, and they’re significant. The penalty is 25% of the minimum required distribution amount. However, this penalty declines to 10% if you correct the mistake within two years of the missed deadline.
The December 31 deadline is firm; missing it can be costly. If you realize you’ve made an error, act quickly to withdraw the required amount and consider filing IRS Form 5329 (a tax form for reporting additional taxes on retirement accounts) with an explanation. The IRS may waive penalties for reasonable errors, such as illness or other unforeseen circumstances. Working with a financial professional can help you stay on track and avoid this costly mistake.
How to Calculate RMDs
The basic formula is straightforward:
RMD = Account Balance (on December 31 of previous year) ÷ Life Expectancy Factor
Most people use the Uniform Lifetime Table to figure out their Life Expectancy Factor, but if your spouse is your sole beneficiary and more than 10 years younger than you, you’ll use a different table that results in smaller required withdrawals.
Here’s an example: Sarah is 75 years old with a $200,000 IRA balance as of December 31, 2024. Using the Uniform Lifetime Table, her life expectancy factor is 24.6. Her 2025 RMD would be $8,130 ($200,000 ÷ 24.6).
If you have multiple IRAs, calculate the RMD for each account separately. However, you can take the total RMD amount from any one of your IRAs. However, employer-sponsored plans like 401(k)s require you to take separate RMDs from each account — you can’t combine them.
What Can You Do with RMD Money?
Once you’ve taken your RMD, the money is yours to use however you choose. Common options include:
Covering living expenses: Use the funds for daily necessities, housing costs, healthcare, or other essential needs.
Funding discretionary spending: Pay for travel, hobbies, gifts to family, or other lifestyle expenses you’ve been looking forward to in retirement.
Reinvesting for continued growth: Transfer the money to a taxable investment account (like a regular brokerage account) where you can continue to take advantage of its growth potential. While you’ll pay taxes on future gains, reinvesting RMDs if you don’t need the income immediately keeps your money working for you.
Helping with education costs: Use RMDs to fund a 529 college savings plan for children or grandchildren — the money will still be taxed as income to you but future growth in the 529 can be withdrawn tax-free when used for educational expenses.
Supporting charitable causes: Make direct donations to your favorite charities. Even better, consider a Qualified Charitable Distribution (QCD), where the money goes directly from your IRA to charity. A QDC counts toward your RMD requirement while avoiding income taxes on the distribution. You can donate up to $108,000 per year using QCDs.
Thoughtful planning around how to use RMDs can help support your overall retirement goals.
Are Required Minimum Distributions (RMDs) Taxed in California?
Yes, RMDs are subject to California state income tax. California treats retirement account withdrawals as taxable income, meaning your RMDs are added to your other income and taxed according to the state’s income tax brackets, which range from 1% to 13.3%.
Since RMDs are considered income in the year you receive them, California residents need to plan carefully. For Californians, strategic timing and distribution planning are even more valuable given the state’s high tax rates. California RMD rules are complicated. Consider working with financial planners in San Diego who understand both federal RMD rules and California’s specific tax implications.
Have Questions About RMDs? Our Experienced Financial Advisors Have Answers
RMD planning doesn’t have to be overwhelming. At Blankinship & Foster, our experienced team can help clients manage these requirements with clarity and confidence. We understand every situation is unique, and we work closely with you to develop strategies that minimize tax impacts while meeting your retirement goals.
Our advisors bring decades of experience helping pre-retirees and retirees create comprehensive plans that address RMDs alongside other retirement income sources. We coordinate with your tax professionals to make sure your withdrawal strategy aligns with your overall financial objectives.
Ready to discuss your RMD strategy? Contact us to schedule a complimentary consultation and discover how thoughtful planning can help you make the most of your retirement years.Want to learn more about creating a successful retirement plan? Download our free resource, “The Essential Guide to Retirement Planning,” to discover key steps for mapping out your retirement goals, positioning your investments for success, managing tax-efficient withdrawals, and building lasting financial security.