RMD Deadline Reminder: What Tax Professionals Need to Know
As tax season approaches, tax professionals should remind clients who turned 73 in 2024 about the upcoming April 1, 2025 deadline for their first Required Minimum Distribution (RMD) from traditional IRAs, 401(k)s, and other retirement accounts. Ensuring compliance can help clients avoid significant penalties and potential tax burdens.
Who Must Take an RMD?
Clients who turned 73 in 2024 are required to take their first RMD by April 1, 2025. Going forward, they must take RMDs annually by December 31. If they delay their first RMD until April, they will need to take two distributions in 2025—one for 2024 and another for 2025—which could increase their taxable income.
How to Calculate RMDs
As a tax professional, it's crucial to ensure accurate RMD calculations. The amount is based on:
The account balance as of December 31 of the prior year.
The IRS Uniform Lifetime Table, which provides the distribution factor based on age.
Clients who fail to take the correct RMD amount may face excise tax penalties. While the standard penalty for under-withdrawals is 50%, recent tax law changes (SECURE 2.0 Act) may reduce it to 25% or 10% under certain conditions.
Accounts Subject to RMDs
Tax professionals should ensure clients are aware that RMDs apply to:
✅ Traditional IRAs
✅ SEP IRAs & SIMPLE IRAs
✅ 401(k) & 403(b) plans (excluding Roth accounts)
✅ Other employer-sponsored retirement plans
Roth IRAs remain exempt from RMDs during the owner’s lifetime, and the SECURE 2.0 Act eliminated RMDs for Roth 401(k)s starting in 2024.
Tax Planning Strategies for Clients
To help clients manage their RMDs efficiently:
✔️ Review tax implications to avoid unnecessary tax liabilities.
✔️ Consider tax-efficient withdrawal strategies, such as charitable distributions or spreading withdrawals to minimize bracket impact.
✔️ Automate withdrawals to ensure compliance and prevent last-minute penalties.
✔️ Remind clients early to prevent rushed decisions and potential tax burdens.
Tax professionals play a crucial role in guiding clients through these mandatory distributions. By proactively addressing RMD requirements, you can help clients stay compliant and optimize their tax strategies.
Disclaimer: This article is for informational and educational purposes only and does not constitute legal tax advice. Advanced Tax Solutions is not liable or responsible for any damages resulting from or related to your use of this information. It is your responsibility to refer to official IRS documentation for information regarding any tax laws or tax information shown here.
