Time flies – and never so quickly as we approach the annual deadline for taking a Required Minimum Distribution from traditional IRAs and 40l(k) and 403(b) plans. With more boomers reaching age 73 each year, it’s worth reviewing the rules. And even more importantly, it’s worth sitting down right now to calculate and take your RMD, so you don’t get caught in the year-end crunch.

If you reached age 73 this calendar year, or reached that age in previous years, the government wants its tax dollars! While your retirement funds grew tax-deferred over many years, the law now requires you to take an annual distribution from your requirement account – and pay taxes on the money!

The formula is based on your age –and the total amount of money in your tax-deferred retirement accounts at the end of last year – 2024. That’s why I always recommend you keep your year end statements from the previous year, and do the calculations for your RMD in January – even though you have until the end of this year to actually take the distribution.

There are many online calculators designed to help you come up with the required amount. You’ll find them by searching online, or asking your IRA custodian to do the calculations for you. Or go to: www.calculator.net/rmd-calculator. The formula requires your date of birth and the total retirement plan assets as of year-end, last year (2024).

But here’s a checklist of things to keep in mind before you start looking for the magic RMD number:
• You must total up the value of all your traditional IRAs as of LAST year-end, 2024, to start the calculation process. (Roth IRAs do not require RMDs.)
• But after doing the calculation, you can take the money out of any one, or more, of your IRAs – as long as you withdraw the correct total amount.
• If you have old 40l(k)s, you must take a separate RMD from each of them, so do not include them in your IRA RMD calculation. That’s one reason you should roll those old 40l(k) plans into a rollover IRA. But you must take this year’s RMD before you do a rollover.
• A special exception: If you are still working for the company, you are not required to take an RMD from that 40l(k) plan only, though you must take RMDs from other accounts.
• If this is your first RMD, having reached age 73 in 2025, you do have the option to wait until April 1, 2026. But that could create another problem. You’d also be required to take a 2026 RMD. And the combined taxable income in one year could not only push you into a higher tax bracket, but increase your Medicare Part B and D premiums! So, take the RMD before year end.
• Speaking of taxes, it makes sense to ask your plan custodian to withhold taxes from your distribution. Depending on your other income, you may want to have them withhold 15% or 20%, so you don’t have a surprise tax bill at the end of the year. Your custodian will send you 1099R tax forms in January, noting the amount withdrawn and the taxes paid.
• A special note to people who have significant additional income such as dividends or consulting fees from which taxes are not withheld. You may elect to have a much larger percentage of your RMD withheld for taxes, to meet your overall tax obligation. Just be sure to take that RMD early enough in the year to cover required quarterly estimated payments on your other non-taxed income.

While you are required to take your distribution before year-end, it may make sense to spread your withdrawals out throughout the year. Plan ahead for next year. If you calculate your RMD this coming January, based on year-end IRA valuations, you could divide that amount by 12 and ask your custodian to send you a monthly deposit, minus taxes withheld.

And a word of caution: It doesn’t make sense to market-time your RMD. Yes, if stocks go higher in the next few weeks, you’ll be sorry you had to liquidate for your RMD. But stocks could just as easily fall. And since your RMD is based on last year-end valuations – your withdrawal requirement will remain the same!

In fact, it makes sense to keep a significant portion of your IRA in a money market fund – prepared for withdrawals that are inevitable – whether to spread them out during the year, or avoid a year-end wave of tax selling.

Finally, the penalty for failure to take your RMD is steep – 25% of the amount that should have been withdrawn! So don’t delay. Avoid the year-end crunch and make sure your bank receives your RMD on time.

Oh, and if you’re among the lucky few who don’t need to use the RMD money for everyday expenses, you can always put it in CDs or T-bills, to continue earning interest. Or watch for my next column on using RMDs for charitable contributions. That’s the Savage Truth.