There's Only a Few Weeks Left to Take Your 2025 Required Minimum Distributions (RMDs). What to Do to Avoid a 25% Tax Penalty.

With January just around the corner, you might already be looking ahead to next year and what you hope to accomplish. Maybe it's a trip you've always wanted to take, or perhaps you want to start volunteering. But before you map out your 2026, make sure you've ticked all the necessary boxes on your 2025 to-do list.

If you're 73 or older, you can't forget to take your required minimum distributions (RMDs), or else you'll pay a 25% tax penalty on the amount you should've withdrawn. RMDs can seem confusing at first, but you only need to know simple math to figure yours out. Just follow these steps.

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Determine which accounts you must take RMDs from

The IRS requires all adults 73 and older to take RMDs from each of their retirement accounts each year, with two key exceptions. The first is Roth IRAs and 401(k)s. You usually don't owe the government any taxes on these withdrawals, so it has no incentive to force you to take the money out.

The other exception is your 401(k) from your current employer if you're still working and own less than 5% of the company. However, even if you meet these criteria, you'll still need to take RMDs from any IRAs or old 401(k)s you have in your name.

Calculate your RMD amounts for each account individually

Your RMD depends on your age and your account balance at the end of the previous year -- Dec. 31, 2024, for 2025 RMDs. You may be able to find details of your account balance at the end of 2024 through your online retirement account portal. You can also ask your plan administrator if you're unsure how to find this information. Record the balances for each account you must take RMDs from separately.

Then, divide each one by the distribution period next to your age listed in the IRS's Uniform Lifetime Table. The result is your RMD. For example, if you had $100,000 in a traditional IRA on Dec. 31, 2024, and you're 73 years old, you'd divide $100,000 by 26.5 -- the distribution period for 73-year-olds -- to get an RMD of about $3,774. This is the minimum amount you must withdraw to avoid the 25% penalty, although you're free to withdraw more if you prefer.

Decide how you're going to approach your RMDs

Now that you know how to calculate your RMDs, the next step is to actually withdraw the correct amount of money if you haven't already done so in 2025. The process for this step varies a little, depending on the types of accounts you have and whether you want to keep the money for yourself and pay taxes on it, or skip the taxes and donate it to a charity.

You must take an individual RMD from each of your traditional 401(k)s, but that's not the case for IRAs. Say you have two accounts, one with a $4,000 RMD and one with a $6,000 RMD. With 401(k)s, you'd have no choice but to take $4,000 from the first and $6,000 from the second. But with IRAs, you could take $5,000 from each, $10,000 from one, or whatever combination you'd like -- as long as your total IRA withdrawals equal or exceed $10,000.

When you take RMDs, you will pay ordinary income taxes on the withdrawal. However, if you'd like to avoid that, you can opt for a qualified charitable distribution (QCD) instead. This is where you request that your plan administrator transfer your RMD amount or a portion of it to a qualifying tax-exempt organization of your choosing rather than giving it to you. The money can't pass through your hands first, or it won't count. Done correctly, a QCD fulfills your RMD for the year without raising your tax bill.

Whichever method you choose, act in the next couple of weeks. Those who just turned 73 in 2025 technically have until April 1, 2026, to take their first RMD, but everyone else must complete theirs by Dec. 31, 2025.

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