3 Required Minimum Distribution (RMD) Rule Changes Everyone Must Know Before the End of 2025

The government gives you a big incentive to save for retirement in a 401(k) or individual retirement account (IRA). You don't have to pay taxes on any of your contributions to those accounts in the year you make them. On top of that, the investments in those accounts grow tax-free; there are no taxes on dividends or capital gains. That can encourage a lot of investors to keep money in those accounts as long as possible.

Unfortunately, the government won't let you keep growing your savings tax-free forever. Eventually, it imposes required minimum distributions, or RMDs, on traditional IRAs and 401(k) accounts. Currently, anyone age 73 or older must take minimum distributions each year, and some inherited IRA holders must take them as well. You'll have to pay regular income tax on those withdrawals, which can make them a challenge to navigate for many retirees.

The penalty for failing to take an RMD on time can be steep, plus you'll still need to make the withdrawal and pay the income taxes on it. The deadline for most RMDs is Dec. 31, so you might have only a few days to make the distribution at this point. Here are three important recent rule changes that could affect you and whether you take an RMD in 2025.

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1. Your inherited IRA may be subject to RMDs

If you inherited an IRA from someone after Dec. 31, 2019, you may have to take an RMD before the end of the year if you haven't already.

The rule comes from the original SECURE Act, passed all the way back in 2019. The law established a new rule for inherited IRAs, requiring full disbursement within 10 years of inheritance. However, it was unclear whether IRAs subject to RMDs were required to continue making those RMDs if they had to deplete the entire account within 10 years anyway. As a result, the IRS waived the requirement each year from 2020 through 2024.

The IRS provided an official ruling last summer. With limited exceptions, anyone who inherited an IRA from someone who was already subject to RMDs must continue taking RMDs from that account. The 10-year rule still applies as well. That said, it likely makes sense for most to spread out the distributions of an inherited IRA over the 10-year period to minimize the tax burden. Still, the lack of flexibility and the potential penalties of the RMD enforcement may negatively impact some IRA inheritors.

If you fail to take the RMD by Dec. 31, you'll be subject to a 25% penalty. However, that penalty can be reduced to 10% if you take the distribution within two years and file Form 5329.

2. Your Roth 401(k) is no longer subject to RMDs

Unlike Roth IRAs, Roth 401(k)s were subject to required minimum distributions based on the same rules as traditional 401(k) accounts. However, the SECURE 2.0 Act changed that, removing the requirement for Roth 401(k) accounts starting in 2024. If you've been holding on to a Roth 401(k) account for years, you can benefit from that change by allowing your investments to grow tax-free for as long as you want.

The rule change may have a bigger impact on current workers, especially those approaching retirement. Starting in 2026, employees age 50 and over who earn above $145,000 will be required to make catch-up contributions to a Roth 401(k) account, per the SECURE 2.0 Act. Many big savers may find they have substantial savings in a Roth 401(k) by the time they retire. If they want to keep their 401(k) accounts instead of rolling them over into Roth IRAs, they can do so knowing it won't negatively impact their RMD position.

3. You can reduce your RMD by up to $108,000

The SECURE 2.0 Act also included an increase to a clever way to reduce your RMD, if you're charitably inclined. Anyone age 70 1/2 or older can make qualified charitable distributions directly from their IRA to a nonprofit organization. The amount used to be limited to $100,000, but the new law indexes that amount for inflation. As a result, IRA owners can contribute up to $108,000 to charity through a qualified charitable distribution, or QCD, in 2025.

There are several reasons to use a QCD to contribute to charity. First, it counts toward your RMD, so you can reduce the amount you have to take from your account and pay taxes on. Second, they effectively move a below-the-line tax deduction to an above-the-line deduction. Since the QCD never impacts your adjusted gross income, you'll never pay income taxes on it.

Meanwhile, you can take the standard deduction on your tax return, which can be quite substantial for those over 70 1/2. Lastly, since the QCD won't impact your adjusted gross income, it can ensure you qualify for additional tax deductions and keep taxes on Social Security income low.

There are some important details about QCDs to note, though. First, they apply only to IRAs. And each person's IRAs are subject to RMDs separately. That means you can't use a QCD from one spouse's IRA to cover the required distribution from both spouses' accounts. Likewise, you can't use QCDs to cover RMDs from a 401(k) or other retirement plan.

Even if you don't plan on maxing out the QCD limit, it's still a great option to use for donations and reduce your RMD.

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