As the end of the year approaches, many investors still need to make required withdrawals from their retirement accounts or face IRS penalties of up to 25%. This includes retirees and certain heirs who inherit individual retirement accounts.
At age 73, most retirees must begin taking required minimum distributions (RMDs) from their pre-tax accounts. Your first RMD is due by April 1 of the year you turn 73, and future withdrawals are due by December 31. For heirs facing RMDs, the annual deadline is also December 31st.
Fidelity data shows that even as the annual withdrawal deadline approaches, many investors still haven’t made the required withdrawals.
As of Nov. 30, Fidelity reported that 53% of Fidelity investors requiring RMDs in 2025 had not taken any RMDs, and 29% of their outstanding RMDs were from inherited IRAs. This data does not take into account possible RMDs taken from other company accounts.
Shyam Gangrani, head of retirement distribution at Fidelity, told CNBC that if the Dec. 31 deadline is to be met now, “you should get it as soon as possible.”
Otherwise, withdrawal flexibility may be reduced. For example, some investors have to sell assets to free up cash for RMDs, he said.
Every year, millions of investors face IRS penalties if they fail to follow complex RMD rules. These rules have changed in recent years amid new laws and agency guidance.
What you need to know about missed RMD penalties
If you do not withdraw your RMD in full by the due date, there will be a penalty of 25% of the amount due. According to the IRS, this percentage can be reduced to 10% if the RMD is “timely amended” and a Form 5329 is filed within two years.
The IRS says that in some cases, if the shortfall was caused by a “reasonable error” and you took “reasonable steps” to correct the error, you may be able to waive the penalty entirely.
Ganrani said if you missed the Dec. 31 RMD deadline, you want to receive your funds “as soon as possible” to demonstrate a “timely” withdrawal. “If you’re doing the right thing, it seems like (the IRS) is willing to work with you.”
Inherited IRA rules are the “biggest landmine”
Experts say the complex rules surrounding inherited IRAs can also lead to IRS penalties.
“This is the biggest land mine of 2025,” said Scott Van den Berg, a certified financial planner and president of Century Management, an Austin advisory firm.
Starting in 2020, certain inherited accounts will be subject to a “10-year rule” that requires heirs to use up their balances by the 10th year after the original account owner’s death.
Additionally, some non-spouse beneficiaries, such as adult children, must begin taking RMDs over a 10-year period beginning in 2025.
If the original account owner already started RMDs before death, non-spouse heirs must continue RMDs each year. Previously, the IRS waived penalties for missed RMDs, but that no longer applies in 2025.
“Many beneficiaries are unaware that the rules have changed,” Van den Bergh said.
