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You Can’t Ignore Required Minimum Distributions—They Can Sneak Up and Trigger Big Tax Bills

Missy E
November 14, 2025

Key Takeaways

Required Minimum Distributions (RMDs) are mandatory for most retirement accounts once you reach age 73 in 2025, and failing to take them can lead to steep tax penalties.
Coordinating RMDs across your TSP, IRAs, and other retirement income sources is crucial to managing taxes and avoiding unexpected income spikes.

Understanding the Purpose of RMDs

Required Minimum Distributions are IRS-mandated withdrawals from tax-deferred retirement accounts, including the Thrift Savings Plan (TSP), traditional IRAs, and similar plans. The purpose is simple: the government wants to begin collecting tax revenue on the money that has grown tax-deferred over the years.

In 2025, the RMD age is 73. This age threshold reflects a change from 2022 legislation that raised the RMD age from 72. The deadline for your first RMD is April 1 of the year following the calendar year in which you turn 73. After that, annual RMDs are due by December 31 each year.

What Accounts Are Subject to RMDs?

You must take RMDs from the following accounts:

Traditional TSP (not Roth TSP)
Traditional IRAs
SEP IRAs and SIMPLE IRAs
401(k), 403(b), and 457(b) accounts (excluding Roth versions)

Roth IRAs do not require RMDs during your lifetime, and Roth TSPs were also exempt starting in 2024.

Public sector retirees often have multiple accounts across various retirement savings vehicles, which makes coordinating RMDs essential to avoid unnecessary taxes or missed deadlines.

When and How RMDs Are Calculated

RMDs are calculated annually based on two factors:

Your account balance as of December 31 of the prior year
Your life expectancy according to IRS Uniform Lifetime Tables

For example, if your TSP balance was $500,000 on December 31, 2024, and your life expectancy factor is 26.5 (for age 73), your 2025 RMD would be roughly $18,868.

Each account must be considered separately, though IRA balances can be aggregated to take the total RMD from one account. This is not the case with TSP and other employer plans; those RMDs must be withdrawn individually.

What Happens If You Miss an RMD?

Missing your RMD triggers one of the most severe penalties in the tax code. In 2025, the penalty is 25% of the amount you failed to withdraw. However, if the missed RMD is corrected within two years, the penalty may be reduced to 10%.

Example: If you were required to withdraw $10,000 and didn’t, the IRS could assess a $2,500 penalty. If corrected promptly, the penalty might drop to $1,000. Either way, it’s a cost most retirees would rather avoid.

The First RMD Timing Trap

The first RMD offers a timing option—but it can cause confusion. You have until April 1 of the year after turning 73 to take your first RMD. However, if you delay that first RMD into the next year, you must also take your second RMD by December 31 of that same year.

This means you’ll have two taxable withdrawals in one year, potentially pushing you into a higher tax bracket.

A better strategy for some retirees is to take the first RMD in the year they turn 73 rather than waiting. This helps smooth out taxable income and keeps your Medicare premiums and Social Security taxation more predictable.

Coordinating RMDs Across Retirement Income Sources

For public sector retirees under FERS or CSRS, RMDs add another layer to your income picture:

Your annuity income is already taxable.
Social Security benefits, if claimed, may be partially taxable depending on your total income.
Add RMDs to this, and your tax bracket could rise quickly.

To avoid that:

Review your total income sources annually.
Consider spreading your RMD withdrawals throughout the year to manage cash flow and taxes.
Factor in spousal income if filing jointly.

Planning in advance—before you turn 73—can position you to minimize spikes in taxable income.

Strategies to Reduce the RMD Tax Impact

There are several legitimate ways to reduce the burden of RMDs:

Convert to Roth Accounts Before 73

Roth conversions allow you to pay taxes now and avoid RMDs later. If you convert portions of your TSP or traditional IRA to a Roth IRA before age 73, you shrink the future pool of assets subject to RMDs.

However, conversions increase taxable income in the year you do them. Be strategic:

Spread conversions over several years
Do them during lower-income years
Stay aware of tax bracket thresholds

Consider Qualified Charitable Distributions (QCDs)

If you’re age 70½ or older, you can make QCDs directly from your IRA to a qualified charity. The donation counts toward your RMD but is excluded from taxable income (up to $100,000 annually).

QCDs are only available from IRAs—not TSP accounts. If you want to take advantage of QCDs, you may consider transferring TSP funds to an IRA after retirement.

Work Longer—If It Makes Sense

If you’re still employed and contributing to a TSP or 401(k), you may be able to delay RMDs from that account—provided you don’t own more than 5% of the organization. For public sector workers, this exception can allow deferral beyond age 73.

This strategy does not apply to IRAs or accounts from previous employers.

Managing RMDs from TSP Specifically

The TSP automatically calculates your RMD annually and distributes it unless you make other withdrawal choices. This auto-withdrawal helps you avoid penalties—but it may not align with your broader tax strategy.

In 2025, you can still make installment withdrawals, lump-sum withdrawals, or set up monthly payments. Each method impacts your taxes differently. Consider:

Taking larger withdrawals in years when your income is low
Adjusting monthly payments annually based on projected RMDs
Coordinating TSP withdrawals with IRA RMDs to avoid over- or under-distribution

RMDs and the Medicare Premium Trap

Many public sector retirees overlook how RMDs influence Medicare premiums. Income from RMDs contributes to your Modified Adjusted Gross Income (MAGI), which is used to determine your Medicare Part B and D premiums.

In 2025, if your MAGI exceeds $103,000 (individual) or $206,000 (joint), you’ll pay IRMAA—an income-related surcharge. Coordinating your RMDs to avoid jumping above those thresholds can keep your healthcare costs more manageable.

Annual Planning Makes a Difference

RMDs aren’t a one-time concern. Each year brings a new calculation and a different mix of:

Account balances
Tax brackets
Medicare premiums
Social Security income

Because these variables shift annually, you should schedule a yearly review of your retirement accounts and income strategy. This can help you:

Minimize total taxes
Maintain eligibility for certain benefits
Avoid RMD penalties
Adjust your withdrawal strategy based on market performance

Public sector employees—especially those with long service histories—tend to accumulate substantial balances across multiple accounts. Coordinated annual planning helps ensure those savings last while staying compliant with IRS rules.

RMD Rules If You Inherit a Retirement Account

If you inherit a traditional IRA or TSP account in 2025, different RMD rules apply:

Spouse beneficiaries can treat the account as their own or take RMDs based on their age.
Non-spouse beneficiaries typically must withdraw the entire balance within 10 years of the original owner’s death if the account holder died after 2019.
There are no annual RMDs required within that 10-year period, but the account must be emptied by the end of the 10th year unless exceptions apply.

Understanding these inheritance rules helps avoid additional penalties and ensures compliance.

Why Public Sector Employees Are Especially at Risk

Because your retirement income often comes from three sources—your annuity, TSP, and Social Security—you may unintentionally trigger higher taxes through required distributions. If you don’t factor in RMDs early, you may face:

Unplanned tax bills
Medicare surcharges
Benefit phase-outs

Start considering your RMD exposure as early as your 60s. By age 67, when most are eligible for full Social Security benefits, the timing of withdrawals becomes especially important.

Staying Ahead of RMDs Can Help Preserve More of Your Retirement Income

Ignoring RMDs isn’t just risky—it’s expensive. They’re not optional, and waiting until the last minute usually leads to fewer choices and more tax consequences. By mapping out your distribution strategy now, you can better protect your income, reduce your taxes, and maintain control over your finances.

If you’re uncertain about how to handle RMDs from multiple retirement accounts or want to make sure your withdrawals are timed to your advantage, speak with a licensed agent listed on this website for professional help.