Social Security Alert – Retirees Must Meet This Requirement by May 1st to Avoid a 25% Penalty!

As 2025 gets closer, retirees receiving Social Security benefits or tapping into tax-deferred retirement accounts have a crucial date to keep in mind: May 1, 2025. Missing this deadline could lead to a 25 percent IRS penalty on missed Required Minimum Distributions, known as RMDs. This isn’t just another paperwork hassle—it could seriously impact your finances.

Whether you manage your retirement accounts yourself or work with an advisor, knowing this rule is key to protecting your hard-earned savings. Let’s walk through what you need to know to avoid penalties and keep your retirement on track.

Alerts

Here’s a quick breakdown:

If you turned 73 in 2024, this upcoming RMD deadline is about more than just following rules—it could save you thousands in taxes and penalties.

RMDs

Required Minimum Distributions are yearly withdrawals the IRS makes you take from certain retirement accounts. These include Traditional IRAs, 401(k)s, 403(b)s, and others where your money grew tax-free until retirement.

Originally, retirees started RMDs at 70½. Thanks to the SECURE Act of 2019, the age moved to 72. Now, with SECURE 2.0 passed in 2022, the age is up to 73. So, if you were born in 1951, this rule now applies to you.

Important note: Roth IRAs don’t require RMDs during your lifetime, but Roth 401(k)s did—until that rule changed in 2024.

Deadline

If you turned 73 last year, you must take your first RMD by May 1, 2025. But don’t wait too long. You’ll also have to take your second RMD by December 31, 2025, meaning two withdrawals could hit your taxes in the same year.

Example:

Imagine your Traditional IRA balance on December 31, 2024, is $200,000. Using the IRS Uniform Lifetime Table, the distribution factor at age 73 is 26.5.

Calculation:

$200,000 ÷ 26.5 = $7,547.17

If you miss taking out that amount, the IRS could slap a 25 percent penalty—that’s about $1,886.79. But if you correct it quickly and file IRS Form 5329, you might reduce that penalty to just 10 percent.

Meet

Here’s how to make sure you stay compliant:

1. Determine If You Are Affected: You need to take an RMD if you turned 73 in 2024 and own tax-deferred accounts like IRAs or 401(k)s.
2. Calculate Your RMD Correctly: Use the account balance from December 31, 2024. Divide that number by the IRS distribution factor for your age. If you have several IRAs, you can combine your RMD total and take it from one or more IRAs. But for 401(k)s, you must take separate RMDs from each account.

Helpful tool: IRS RMD Worksheet

3. Take Your Distribution Early: Don’t wait until the last minute. Schedule your withdrawal well ahead of May 1, 2025.
4. Know Taxes: Your RMD is taxable as ordinary income. This could push you into a higher tax bracket and impact Medicare premiums or Social Security taxation.

Tip: To avoid income stacking, consider taking your first RMD in late 2024 rather than waiting until May 2025.

5. Fix Mistakes Quickly: If you miss your RMD, file IRS Form 5329 right away, explain the cause, and correct the error. Many times, the IRS will waive or reduce penalties.

Pitfalls

Watch out for these common mistakes:

• Waiting until the last day to take your RMD
• Forgetting old retirement accounts
• Confusing Roth IRAs with Roth 401(k)s
• Taking too much or too little money out

A little organization now can save you a lot of headaches later.

Help

Managing RMDs across multiple accounts can get tricky. Here’s where a financial advisor or CPA can be a lifesaver:

• Certified Financial Planners (CFPs) can build an RMD strategy aligned with your broader goals
• Certified Public Accountants (CPAs) can help manage tax impacts
• Retirement specialists can schedule and automate distributions

Top firms like Vanguard, Fidelity, and Charles Schwab also offer free RMD calculators online. You can use tools like the Vanguard RMD Calculator to estimate your required amounts easily.

Taking action now will help you avoid penalties and protect your retirement income.

FAQs