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Retirement: How to calculate your RMD for 2025
A required minimum distribution (RMD) is the minimum amount of money you must withdraw from your retirement plans annually after reaching a certain age, depending on your birth year. Mind Your Money host Brad Smith breaks down the details. To watch more expert insights and analysis on the latest market action, check out more Mind Your Money here. As you invest over the course of your career, you will hopefully build enough wealth to support yourself in retirement. That is the goal. But as you get older, you will eventually get to the point where you need to take requirement and required minimum distributions. That means you must withdraw a certain amount from your retirement plans with tax deferred contributions. That includes your IRA, your 401K and 403B. You must take your first RMD by April 1st the year after you turn 73. You will then be required to take another RMD by December 31st, that same year. And then you will be required to take additional RMDs every year. If you don't, you may have to pay a 25% tax on the amount not distributed as required. But that's just for the current batch of retirees. For those who are born after 1960s, well, yeah, after 1960, for those birth dates, you won't be required to take your first RMD until you turn 75. In order to calculate the required minimum distribution for a single IRA holder, you take the total balance by the end of the previous tax year and divide it by the IRS's life expectancy for your age. For example, if you turn 73 in 2025, the IRS thinks you will live an additional 26 and a half years, making the required minimum distribution on savings of $200,000 just over $7,500. The calculation can vary depending on what type of accounts that you have or the age of your spouse. So, make sure to check with your financial advisor. You can also scan the QR code below to find out more about RMDs. Sign in to access your portfolio
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an hour ago
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Everything retirees need to know about RMDs: Ask Yahoo Finance
A required minimum distribution (RMD) is the minimum amount of money you must withdraw from your retirement plans annually after reaching a certain age, depending on your birth year. Yahoo Finance Senior Columnist Kerry Hannon and Yahoo Finance podcast Decoding Retirement host Robert Powell join Mind Your Money with Brad Smith to answer all of your questions about RMDs. Read more: 401(k) vs. IRA: The differences and how to choose which is right for you To watch more expert insights and analysis on the latest market action, check out more Mind Your Money here. Sign up for Mind Your Money newsletter Well, we're going to help you get retirement ready and talk about required minimum distributions known in the personal finance world as RMDs. And today, you ask the questions and ask finance everything. Ask Yahoo finance anything. We have a whip smart team to answer your RMD questions. And joining me now, we've got Yahoo finance senior columnist, Kerry Hannon. Also with us is host of Yahoo Finances Decoding Retirement video podcast, Bob Powell. Kerry, let's start with you. Just first, from all the folks writing into you, what's the thing that confuses them the most about RMDs? Yep. Uh Brad, I'd have to say, the big one is like, when do I have to take them, right? It's it's confusing for people about, you know, when this specific thing and as as we discussed, it's, you know, April 1st of the year following if you turned 73, this year it'd be next April. Um, but you can take them by December 31st this year. If you turn 73 this year, you can go ahead and take it by December 31st. That's what really trips people up. But here's the beautiful thing is, to tell you the truth, you don't really have to do this on your own, do that calculation. Generally speaking, your financial services company where your um IRA is or your 401k will do this calculation for you. And they will usually let you know by the end of December what you're going to have to pay out that following year. And you can make the decision. Do I want to automate, you know, do I want to automate it? How often do I want to take money out of the accounts? And should they go ahead and withhold the taxes for you? And most people say, yeah, go right ahead and do that. There is an exception to this, um, Brad that I like people to remember that if you are still working, um, at the employer where you're paying into that 401K plan or what have you, you don't have to take your required minimum distributions in general until you do retire. So that's one exception to this. But really that's what trips people up. So again, you know, reach out to your accountant, talk to the plan administrator where your money is and they can help you work through this. Carry, one of your readers wrote to you and asked, the stock market was up last year and so were my retirement accounts. Will my RMDs be the same or more than last year? Sorry, Charlie, they're going to be more. You know, it's the thing is, that's the point is higher returns on your investments translate to higher RMDs because we discussed that calculation. It's how big your account was at the end of December. So that's what you're going to pay for for 2025. You're going to be based on what your uh account was worth at the end of 2024. So, you know, the S&P was up, what was it? Something like 23%. So yes, indeed, they will be a bit higher, but that is translates because you did really well last year. Bob, turning to you. A topic that you're interested in is a new rule regarding RMDs when someone has multiple IRAs and wants to do a roth conversion. So, what is the new rule and how do people navigate it? Yeah. Um, it's a wonder why anyone owns an IRA, Brad, but here's the final regulation. It states that all of your IRAs are now viewed as one giant massive IRA for RMD purposes. Now, historically, you could satisfy the RMD for a specific IRA and then convert any remaining funds in that IRA into a roth, but under the new rule, all of your aggregate RMDs from all of your IRAs must be fully satisfied before any distribution from any IRA can be converted into a roth IRA. And if you convert money from an IRA before you do all that, you could be subject to a 6% excess contribution penalty on the improperly converted amount. Bob, got another one for you here because, you know, it's about the 10-year rule with IRAs. People who inherit an IRA from a parent or other relative have to empty that account within 10 years of their death. But how the money is taken out during those 10 years, it differs around whether that person had started taking RMDs. So, can you please explain these scenarios and tell viewers what they need to do? Yeah, I'll try and simplify it, Brad. So the new final regulations clarify the distribution requirements during the 10 year period. It depend on whether the original IRA owner died before or on or after what's called their required beginning date. So, if the IRA owner died before their RBD, uh the beneficiaries have do not have to take any RMDs during years one through nine, uh following the owner's death. They simply have to empty the entire account by the end of the 10th year. Now, if the IRA owner died on or after their RBD, the uh they have to take a what's called an annual stretch distribution during the years one through nine, and then take out the remaining uh balance by the end of the 10th year. So it's a little complicated uh because we've now added another acronym into the mix here. We've now, in addition to RMD, we've added RBD into the mix. So my advice would be it's best to talk to a professional if you inherit an IRA. Kerry, I got 30 seconds or less. Another one of your readers asks, can I use my RMD to make a charitable donation? What say you? Yes, indeed. If you are charitably inclined, absolutely. You need to make that. It's called a qualified charitable distribution. The money needs to go directly from your IRA or your account to that non-profit, don't come to you, go straight there. Make sure your accountant knows about, so it's not counted as income and that money doesn't get taxed. So, yeehaw, you make a big back, a big uh bang with your buck with that non-profit. And I think it's a wonderful thing. You are some limits. I think it's up to $100,000. You can do that. IRS has a few things around this, but it's really a great option for people. All right. AMAs ran, so AYFAs could sprint here. Ask Yahoo finance anything edition with Carrie and Bob. Thank you both so much answering some of those key burning questions from our viewers and readers. Appreciate it. Thanks, Brad. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
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an hour ago
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Costly IRA mistakes could crush your retirement
What are the biggest mistakes people make when managing their retirement accounts? This week on Decoding Retirement, Robert "Bob" Powell dives into the complex world of IRAs with "the IRA Whisperer" Denise Appleby, CEO of Appleby Retirement Consulting. Denise discusses what to do if you miss your required minimum distribution, the best way to do a 401(k) rollover, and the IRS forms you need to stay on top of your retirement. To hear expert insight on a key component of retirement planning, check out this episode of Decoding Retirement. Yahoo Finance's Decoding Retirement is hosted by Robert Powell. Find more episodes of Decoding Retirement at If you made a rollover contribution, is it in the right box? Right? Look at your 10 and 9Rs too. If you took a distribution, is it coming from the right type of account? Is it reported as a direct rollover when it should be? Things like that gives you an opportunity to audit your IRA, which you must doevery year. When I think about IRAs, individual retirement arrangements, I think it's a wonder why anyone would ever own one. You have to think about beneficiary designations. You have to think about RMDs. You have to think about various forms like 5498 or 1099R or 1099Q. Well, that's what we're going to talk about today with Denise Appleby. She's the CEO and founder of Applebee Retirement Consulting. Denise, welcome. So glad to be here and I'm so glad you're talking about this because people need to know. They, they do need to know, and, and that's part of our goal, Denise here is that at Decoding Retirement, we want this to be people's first and last stop in their search for not just retirement information, but also knowledge and wisdom, and you're here to help us accomplish that goal today. So thank you for being here. Yeah, I, I love the name Decoding because as you know, IRAs are governed by the tax code, and for you and I, it's about translating that to English or decoding. I love that. Yeah, well, it's a tall order and uh you among many, or maybe just a few, quite the best at what you do here. So let's start here with the most recent news, which is Form 5498. Uh, to me, whenever I get this form, I have no idea what to do with it. I know that there's a place on the, uh, 1040 where I have to list something or other to having to do with 5498, but, but help us learn what's going on with what's new about this. Yeah, so the, the, the, the challenge rate form 5498 is that using last year's example, it's not issued until May 31st of this year. So you have already done your tax return. You get this form and you're thinking, ah, I'll just file it away cause my accountant doesn't but you need it, and maybe you should share it with your accountant. I'll give you a real life example. The IRS just issued a private letter ruling. A private letter ruling is where, you know, if you have a problem and your custodian tell you they can't fix it, then you go to the IRS and say, Can you help me?So in this case this person set up an account that they thought was a a Roth Iray. At first everything was fine. Then she got married, changed her name, had the custodian change the account. They still kept it as a Roth account, but they took off the wrath of the title. So every time she looked at the account, she she's thinking, oh, this is a traditional so she makes contributions to the account thinking traditional literary contribution. She rolls over her 401k account to that account, thinking, oh, non-tax will will roll over, only to find out years later, about two years ago. Now this happened in like 2012. Wow. So then she found out about two years ago that the account was actually a Roth and what that meant is, let's say she rolled over.a million dollars from her traditional 401k thinking that it was non-taxable turned out that it was taxable because she processed a conversion without knowing it, so she went back to the IRS after she got a denial from a custodian and the IRS allowed her.A late recharacterization. Remember those? Yeah, they're not allowed anymore. Yeah. After paying a professional to help her fix it and go to the IRS and paying the IRS's huge fee, the IRS says it will allow you to do this recharacterization. Now the problem that the recharacterization can be done, that's good. The question is, what do you do when you get your Form 5498? There's a box on the form going to be checked to see if it's a regular IRA, SEP IRA, simple IRA, or raw IRA. Had she checked that, she would have seen that it was a raw IRA despite what the title said. So when you get your Form 5498 this year, which was just sent out in May, look atThat. And that's only one of the many things that you need to look for, Bob. For instance, if you made a rollover contribution, is it in the right box? Right? Look at your 10 and 9Rs too. If you took a distribution, is it coming from the right type of account? Is it reported as a direct rollover when it should be?Things like that gives you an opportunity to audit your IRA, which you must do every year. Yeah, now, am I correct to say that the information on the 5498, which captures the gross amount in your IRAs, there's a place in the 1040 to actually list that number, is there not? Not the gross amount, but let's glad you asked that question. Let's say you took a distribution from your IRA and you rolled it took it from your traditional IRA. You roll it to a traditional IRA. That's a non-taxable transaction. The distribution side is going to be reported on the 1099R, and that's what the IRS looks at to say, Oh, Bob, you took out a million dollars, or 10, owe me income tax on 100,000 because the IRA custodian is going to report it as being taxable, but they also check a box that says taxable amount not determined, meaning as far as we know it is, but we're not swearing that it when you roll it over, it's going to be reported on your form 5498, and that's where that taxable amount box not determined comes in because it leaves room for your tax preparer to say, Bob, let me see the form 5498 because I want to make sure you rolled it over, right? Or it would have been on your year end statement by then, but the Form 5498 is what is sent to the IRS as proof that you rolled it over. So your your accountant used that information and you're right, that's the information they're going to use to report on your tax return, your 1040 to say Bob took out 100,000 and it's non-taxable, so we report it on line 4A distribution. We exclude it from line and rewrite roll over beside it so the IRS knows what to look for when they get that Form So I was right to say at the beginning that it's a wonder why anyone would want to own an IRA given all the landmines that await people, whether it's Form 5498 or one of my favorites, right, is at some point in one's life, if you own a traditional have to take required minimum distributions and then you'll have to think about things like required beginning date and so forth and so on. Um, and, and a lot of people miss their RMDs. What, how do you handle that? The, what are the what are Denise's rules for handling missed RMD? Not a minefield. So, but I do believe everyone should have an IRA, but you're right, you want to protect certain things and that includes taking a required minimum distribution. Bob, I've come across cases where people didn't take required minimum distributions for 18 years, right, especially when it comes on to inherited accounts. So you got to remember take required minimum distributions from your account. You have to, if you're at least 873 this year, you have to take an R&D for this year. If this is your first R&D year, you just reached 873, you have one due for this year, but you can take it as late as April 1 of next year. Every other R&D must be December 31st of the year for which they're due. So if you wait until next year, you're going to have two to take, and that's a conversation you must have with your CPA. Should I take both of them next year or spread it out between two years because that could affect the amount of income tax. So let's say hear Bob and I talking, you're like, Oh my God, I didn't take my required minimum distribution. And not only that, I inherited an IRA from my uncle 5 years ago, and he was already taking his required minimum distribution, which means I have to take annual required minimum do I do? Because when you don't take a required minimum distribution, Bob, you owe the IRS a 25% excise tax on the amount that you didn't take. It used to be 50% as of 2023, it has been reduced to 25%.Now people usually ask me, they would say, Denise, don't tell the IRS I asked you, but what if I just pretend I don't know and don't take it? Well, you know, here's a reason why you should take it as soon as you find out. First of all, there's a new provision where if you miss your RMB and you take it during what is known as a correction window, the 25% excise tax is automatically reduced to 10%.Right, so that's a bonus right there. The second thing is, if you miss the deadline due to reasonable error and you ask for a waiver, the IRS, I'm gonna go on a limb and say will. I, you know, I prefer to say will likely, but based on my experience, they've never denied a request when the, the reason for missing the deadline is reasonable. Let me give you a reasonable had a 403B account. They also had a traditional IRA. They had to take required minimum distributions from both accounts. Now the law says if you have a 403B and you have an IRA, each of those accounts must satisfy the required minimum distributions there are some rules that allow you to aggregate RMBs. Say you have multiple traditional set and simple IRAs. You can aggregate those, meaning you can combine RMBs for those accounts and take it from one if you want to. Same if you have multiple 4 or what you can't do is take the R&D for 403B from the IRA. This taxpayer didn't know, and they were actually working with a CPA who told them that they could do all along, they calculated the R&D for the 403D, they calculated the R&D for the IRA. They totaled it and they took it from the now they have a new CPA who says, no, you can't do that. In a case like that, here's what you CPR or tax preparer must file IRS Form 5329. There's a space on it where you report your required minimum distribution in that same space. You tell the IRS how much you took, how much you didn't take, and you follow the instructions and ask for a waiver. You attach a nice letter explaining how come you missed your R& you ask nicely for a waiver of of the excise tax and you put everything together and send it in. And no, don't worry if it has been multiple years. I have worked on cases where they have been multiple years, 1015, 18 years and we get a letter back from the IRS saying, yeah, your request has been approved, so don't give up you find out that you owe the excise tax, because there's provision under the tax code that the IRS uses to waive the excise tax if the deadline was missed due to reasonablecause, right? And if the IRS rejects your request, you you've mentioned that it's typically because you filled out the form incorrectly. Is that fair to say? Yes, yes, yes, I've, I've had cases where come to me and say, Denise, I've listened to your seminars, and based on what you tell me, the IRS wouldn't reject a request if there's reasonable cause. But here I get a rejection letter and I say, Give me that letter, let me see it. Then give me that form that you filled out. Turned out they filled out the form incorrectly because if you follow the instructions as they're written, it can right? And so many brilliant people have been tricked by those instructions. You got to read them carefully and make sure in the spot where it says how much do you owe, you put 0, because if you put any other amount, the IRS is going to take that as your acknowledgement that you owe them and you're willing to pay them, so they're gonna come after you for thatmoney. All right, Denise, we have to take a short break and when we come back, we'll talk about maybe Form 1099Q and RMDs, again, if you don't mind, we'll be right back. Welcome back to Decoding Retirement. I'm talking to Denise Appleby. She's the CEO and founder of Applebee Retirement Consulting. Denise, when we left off, we were talking about RMD's and I promised we were going to come back and tackle even more about RMDs andI think one of the biggest things that people need to tackle when they think about this is how do I actually calculate what my required minimum distribution is? Uh, it's fairly simple, but maybe not for some. Maybe not, maybe not it comes to an employer plan like a 401k, the good news is that the plan administrator will likely calculate it for you. Smaller employers sometimes farm it out to, say, an IRA custodian, but you want to know how to calculate the RMB. If you have an IRA, your IRA custodian must send you an RMD notice by January 31, so we're in, say, 2025, you should have gotten it by December 31, 2025. But here's why you want to know how to calculate they make a mistake, you're responsible. Now there are 3 life expectancy tables. The first thing you want to think about the single life expectancy table, which is used for beneficiary accounts, the uniform lifetime table, which assumes that your beneficiary is 10 years younger than you are, and the joint life expectancy table, if you're married to someone much younger, more than 10 years younger, and the and they're your sole primary beneficiary, then you can use that table. So if you're doing your calculation for get the fair market value for December 30, 2024. Then you look at the life expectancy table and based on your age, there's going to be a factor beside it. You get, you grab that factor and you divide it into the fair market value. Voila, you have your R&D. Sounds too easy, right? Here's something that can trip you up. Using the wrong life expectancy table, I just explained when you should use either of the if you have an outstanding transaction, Bob, say in December 2024, you took out a million dollars as a distribution and you rolled it over in January, when your custodian does your calculation, they won't have that million dollars records and so they'll do the R&B calculation minus the million dollars. That means your RMB is going to be short. So you got to look for things like that to make sure that your RMB is right because it's you who's going to be responsible, not your IRA custodian. Yeah, so in many cases, there is some uniformity between IRAs and employer plans with respect to RMDs, but that's not always the case, is that correct? Yeah, that's not always the case. The the the calculation formula is generally the same, right? And if you're still working for an employer that provides your 401k, the terms of the plan couldSay, oh, you're 73, you don't need to start yet because you're still working. Wait until you retire. Don't always assume that that's an option. Check with them first to make sure. Also, if you run your own business, that option is not available to you because you're referred to as what they call a 5% owner. But one of the primary differences, Bob, is if you have a 401k 401k stands on its own when it comes to R&Ds. If you have two jobs like I used to, you still cannot combine those 2 401k accounts. But if you have multiple traditional SEP IRAs, you calculate them you may say, you know, Bob, you're my beneficiary on IRA #1, and I like you better than the beneficiary that's on IRA #2. So I will take from the IRA that you're the beneficiary, but I'll take everything from the IRA where I have beneficiary # that gives you some flexibility. Do not forget your inherited accounts. When we talk about required minimum distributions, there's a tendency to think that it applies only to account owners. But for individuals who have accounts that they inherited, required minimum distributions apply to those two. In some cases, not every year. For instance, if the account owner died before they were supposed to start R& 10 year rule applies to you, then you don't have to do anything. It becomes a tax question as to whether you should during the 1st 9 years you got an MTA account body in year 10. But if they died on or after the date they were supposed to start taking R&Ds, you have to take R&Ds every year, and the life expectancy factor helps to determine how much you should take. Yeah. So we're going to send folks to your website toLearn more about that and and other things that we're not going to talk about today like designated beneficiaries and non-eligible beneficiaries, etc. We'll, we'll send them to your website. But I, I do want to ask, we now live in a world where many folks are gig workers and maybe setting up solo 401ks where, in effect, they are 5% owner, so they would be subject to the RMD rules even if they reach a required beginning date. Is that correct? Absolutely, if you, if you run your solar 401k, you're at least 873 this year, you have to take your RMD. Now, if you work for a huge corporation, then they could have said, you know, wait, you don't have to, and I'm saying cool, you gotta check with them, but you're absolutely right, for gig workers, there are 5% owners and they don't have the option to wait past 873. right, another form that where there's been some updates is something called the IRS form 1099Q. and uh I don't know what stands for. Maybe we're running out of alphabets here. What the folks need to know about that qualified tuition programs like uh you know, 529 plans. So one of the most popular feature that came out of Secure Act 2.0 was this new provision where if you have excess amount in your 529 can move it to your raw IRA as a regular raw IRA contribution. You're subject to the annual IRA contribution limit each year, and you have a lifetime limit of $35,000. Now you can do this only if you have had the 529 plan for at least 15 years. And so there were certain questions aboutIs this going to be reported, because if you move $5000 from the 529 plan to the Roth, it's going to include a prorated amount of basis and earnings, and we weren't sure how that was going to be communicated to the 529 owner. Now the IRS have updated the form if you go to that form now, you'll see where there's an option for the the 529 plan holder or custodian to indicate to the IRS that yes, you have moved X amount from your 529 plan to your BI rate has been done as a direct transfer so it meets all the requirements that it should meet. So when someone might be moving from one employer to another, oftentimes they're told to do 401k rollover trustee to trustee transfer to their new employer if they're able, or if not, to roll it into directly to an IRA. Is there a big mistake that people need to avoid when they're doing this by chance from your perspective? Yes, I'm so glad you mentioned that. So you avoid the 60 day deadline by doing a direct rollover, say from a 401k or to your IRA or you use a trustee to trustee transfer if you're moving from IRA to IRA. Here's a number one mistake that I see happening. You set up the account, it's a Roth tell, say your custodian of the 401k plan, do a direct rollover to my IRA. The number is 1234567. This is a traditional IRA. The funds hit the account. It turns out that it's a Roth IRA, and so here you have an unintentional Roth make sure it's done as a direct rollover. Verify the type of account first to make sure if you want it to go to a traditional liar, it goes to a traditional liar. And here's a tip, Bob. Check your 401k account statement. Do you have after-tax amounts in it? Make sure that goes IRA, that's a tax-free conversion. Do you have employer securities? Stop and call your CPA or your financial advisor because there are special tax benefits that could apply to those employers securities. And if you do anything, it might mess up that opportunity. I'm afraid we've run out of time. We never got to backdoor Roths or mega backdoor Roth, so maybe you'll come back on in a few months and we can talk more about that. In the meanwhile though, I want to thank you for sharing your knowledge and wisdom with us and our listeners and our viewers. It's so greatly appreciated. Thank you. Thanks for having me, and you're doing a good thing here. I appreciatethat. Thank you so much, Denise. So that wraps up this episode of Decoding Retirement. We hope we provided you with some actionable advice to help you better plan for or live in retirement. And remember you can listen to Decoding Retirement on all your favorite podcast platforms. And if you've got questions about money, about retirement, email me at YF podcast@yahoo and we'll do our best to answer your questions in a future episode. This content was not intended to be financial advice and should not be used as a substitute for professional financial services. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
