A Year-End To-Do: Understanding RMDs and Their Impact On Your Finances

Updated 11/25/2025 | As the year begins to wrap, one critical financial task that high-earning executives can’t afford to overlook is required minimum distributions (RMDs). These mandatory withdrawals from certain retirement accounts can lead to hefty penalties if missed — and even bigger tax consequences if mishandled.

For busy tech employees balancing work, family, and finances, understanding RMDs and taking timely action is essential.

Here’s what you need to know about RMDs, their rules, and how they could impact your financial plan.

What are required minimum distributions?

Required minimum distributions are mandatory withdrawals from tax-deferred retirement accounts, like traditional IRAs and 401(k)s, once you reach a certain age. 

As defined by the IRS, Required minimum distributions (RMDs) are the minimum amounts you must withdraw from your retirement accounts each year. You generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 73. The IRS enforces these withdrawals to ensure taxes are eventually paid on the funds you’ve been deferring.

For most retirees, RMDs begin at age 73. The withdrawal amount is calculated annually based on your account balance and life expectancy. 

FYI: According to the IRS If you reached age 73 in 2025:

• If you reach age 73 in 2025, your first RMD is for the 2025 tax year and is due by April 1, 2026 (the year following the year you turn 73). The calculation is based on your account balance on December 31, 2024
  
  
• Your second RMD, for the 2026 tax year, is then due by December 31, 2026, based on your account balance on December 31, 2025.

Failing to take RMDs on time can result in severe penalties — up to 25% of the amount not withdrawn, though this penalty drops to 10% if the oversight is corrected in a timely manner. That’s why keeping RMDs on your year-end checklist is so important!

Why Tech Employees Need to Pay Attention to RMDs

High-earning executives often have multiple retirement accounts, making RMDs more complex. You may also have inherited accounts with their own rules and deadlines. Missing these deadlines or misunderstanding the requirements could result in significant financial consequences, such as:

• Paying unnecessary penalties and taxes
• Receiving a larger-than-expected tax bill if distributions are delayed
• Missing out on opportunities to minimize taxes through charitable contributions

By proactively planning for RMDs, you can avoid these risks and align withdrawals with your broader financial strategy. 

Types of RMDs and key considerations

Not all RMDs are created equal. The rules and implications vary depending on the type of retirement account, whether it’s inherited or your own. Understanding these distinctions is crucial for avoiding penalties, minimizing taxes, and aligning withdrawals with your financial goals.

Inherited IRAs

If you’ve inherited an IRA, RMD rules can vary depending on the type of account and when you inherited it:

• Inherited IRA (pre-2020 rules): Before the SECURE Act of 2020, beneficiaries could stretch distributions over their lifetime. This option minimized annual withdrawals and reduced tax liability.
  
  
• Inherited IRA (post-2020 rules): Now, most beneficiaries must empty the account within 10 years. Delaying withdrawals can result in higher taxes, as a large distribution in the final year could push you into a higher tax bracket.

Keep in mind that RMD rules for inherited IRAs vary depending on the beneficiary’s relationship to the original account owner and the owner’s age at death.

Inherited Roth IRAs also require the account to be emptied within 10 years, though distributions remain tax-free. However, failing to plan can still disrupt your broader financial goals. Charles Schwab has a calculator to help you do the math, but if you have questions, your financial advisor is another great resource. Talk to them about a withdrawal strategy to avoid unpleasant surprises and optimize your tax outcomes.

Traditional RMDs

For traditional IRAs and 401(k)s, the rules are straightforward: you must take RMDs annually starting at age 73. The deadline for taking your RMD is December 31 each year. Under the SECURE 2.0 Act, missing this deadline triggers a 25% penalty on the amount not withdrawn, which can be reduced to 10% if you promptly correct the error and file IRS Form 5329. Note that IRS guidance states that participants in a workplace retirement plan (for example, 401(k) or profit-sharing plan) can delay taking their RMDs until the year they retire, unless they’re a 5% owner of the business sponsoring the plan.

So what happens if you miss the deadline? If you choose to delay, you’ll have to take your first and second RMD in the same year, which may push you into a higher tax bracket.

One strategy to consider: qualified charitable distributions (QCDs). Starting at age 70½, a QCD is a direct transfer of money from your IRA provider, payable to a qualified charity. QCDs can be counted toward satisfying your required minimum distributions (RMDs) for the year, as long as certain rules are met. This can be especially beneficial for tech executives with philanthropic goals, as it enables you to give back while minimizing your tax liability — talk to your financial advisor about this one!

SEP and SIMPLE IRAs

SEP and SIMPLE IRAs, often used by small business owners or self-employed individuals, also require RMDs starting at age 73. If you’re still actively working and contributing to these accounts, your financial advisor is a great resource to help you understand how contributions and distributions interact to avoid unexpected tax complications.

401(k) Plans After Retirement

If you’re still employed at age 73 and contributing to a retirement account, you may qualify for an RMD deferral on that account (depending on your plan). For example, the rules for qualified employer plans, such as 401(k)s, are different: If you continue to work past age 73 and do not own more than 5% of the business you work for, most plans allow you to postpone RMDs from your current — but not a prior — employer’s plan until no later than April 1 of the year after you finally stop working. If you have a 401(k) from an old employer, you may still be subject to the RMD requirement. Check with your plan administrator for both your new and previous employers.

However, this deferral doesn’t apply to IRAs, so careful planning is necessary to coordinate withdrawals across accounts.

Multiple Employer Retirement Plans

For those with multiple 401(k) plans from past employers, each plan requires a separate RMD. In contrast, traditional IRAs can be aggregated for RMD purposes, allowing more flexibility. Failing to account for this distinction could lead to missed deadlines or penalties. (Once again, speak with your advisor about this!).

Roth 401(k)s

Thanks to the SECURE 2.0 Act, designated Roth accounts in workplace plans (including Roth 401(k)s and Roth 403(b)s) are no longer subject to required minimum distributions during the account owner’s lifetime.

Speak to Your Financial Advisor About RMDs

RMDs can be tricky to navigate, especially if you have multiple retirement accounts or inherited assets. At Northern Lights Advisors, we help high-earning tech professionals create tailored financial plans that ensure compliance with RMD rules while optimizing tax efficiency.

Don’t let missed deadlines or overlooked details derail your financial goals. Reach out to our team today to review your required minimum distribution strategy. Put some time on our calendar to schedule a consultation.

Northern Lights Advisors is a fiduciary, fee-only Registered Investment Advisor (RIA) firm based in Seattle, Washington. The information in this article is not intended as tax, accounting, or legal advice. Read the full disclosure here.