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As year-end approaches, many investors still need to take required withdrawals from retirement accounts — or face an IRS penalty of up to 25%. This includes retirees and certain heirs with an inherited individual retirement account.
At age 73, most retirees must start required minimum distributions, or RMDs, from pretax accounts. Your first RMD is due by April 1 of the year after turning 73, and the deadline for future withdrawals is Dec. 31. For heirs facing RMDs, the annual deadline is also Dec. 31.
With the annual deadline nearing, many investors haven’t yet made their required withdrawal, according to data from Fidelity.
As of Nov. 30, 53% of Fidelity investors who needed a 2025 RMD hadn’t taken one — and 29% of those outstanding RMDs were from inherited IRAs, Fidelity reported. The data does not consider possible RMDs taken from accounts with other firms.
At this point, if you’re subject to the Dec. 31 deadline, you should “take it as soon as you can,” Sham Ganglani, retirement distributions leader at Fidelity, told CNBC.
Otherwise, you could have less flexibility with the withdrawal. For example, some investors have to sell assets to make cash available for the RMD, he said.
Every year, millions of investors must follow complex RMD rules or face an IRS penalty. Those rules have changed in recent years amid new legislation and agency guidance.
What to know about the missed RMD penalty
If you don’t take your full RMD by the due date, the penalty is 25% of the amount you should have withdrawn. That could be reduced to 10% if the RMD is “timely corrected” within two years, and you file Form 5329, according to the IRS.
In some cases, the IRS could waive the penalty entirely if the shortfall happened due to “reasonable error” and you’ve taken “reasonable steps” to fix the mistake, according to the agency.
If you miss the Dec. 31 RMD deadline, take the funds “as fast as you possibly can,” to demonstrate a “timely” withdrawal, said Ganglani. “[The IRS] seems to be willing to work with you when you are doing the right thing.”
Inherited IRA rules are ‘the biggest landmine’
The complicated rules for inherited IRAs could also lead to IRS penalties, experts say.
“This is the biggest landmine in 2025,” said certified financial planner Scott Van Den Berg, president of advisory firm Century Management in Austin.
Since 2020, certain inherited accounts are subject to the “10-year rule,” which means heirs must deplete the balance by the 10th year after the original account owner’s death.
Plus, some non-spouse beneficiaries, such as adult children, must start taking RMDs in 2025 over the 10-year period.
If the original account owner already started RMDs before death, non-spouse heirs must continue RMDs yearly. Previously, the IRS waived penalties for missed RMDs, but that no longer applies for 2025.
“Many beneficiaries have no idea the rule changed,” Van Den Berg said.
