Here’s what HIVE AI had to say about “Are distributions from retirement accounts taxable in 2025?”:
Yes, distributions from retirement accounts will generally be taxable in 2025, with specific tax treatment depending on the type of retirement account, the nature of the distribution, and your individual circumstances.
Traditional Retirement Accounts (IRAs, 401(k)s, etc.)
Distributions from traditional IRAs under § 408 are generally included in gross income. Notice 2008-51 This principle applies to most traditional retirement accounts, including 401(k)s and similar workplace retirement plans.
Distributions are taxable in the year they are received because they are paid from pre-tax dollars. See sec. 402(a); sec. 1.402(a)-(1)(a)(1) and (2), Income Tax Regs. Dawson U.S. Tax Court Opinions: Gina B. Weaver-Adams
For example, if you’re required to take a distribution by April 1, 2025 (because you turned 73 in 2024), this first distribution is taxable in 2025 and reported on the 2025 tax return, along with any regular 2025 distribution. IRS Newsroom – IR-2025-33
Required Minimum Distributions (RMDs)
The Internal Revenue Service reminds retirees that in most cases those who turned 73 in 2024 must begin receiving payments from Individual Retirement Arrangements (IRAs), 401(k)s and similar workplace retirement plans by Tuesday, April 1, 2025. These are known as required minimum distributions (RMDs), which are payments typically made by year end. However, individuals who turned 73 in 2024 can delay their first RMD until April 1, 2025. IRS Newsroom – IR-2025-33
It’s important to note that the April 1 RMD deadline is for the first year only. For subsequent years, the distribution is due by December 31. This means taxpayers receiving their first required distribution for 2024 in 2025 (by April 1) must take their second RMD for 2025 by Dec. 31, 2025. IRS Newsroom – IR-2025-33
Failing to take required minimum distributions can result in penalties:
Section 4974(a) provides that if the amount distributed during a year to a payee under any qualified retirement plan or any eligible deferred compensation plan is less than that year’s minimum required distribution, then an excise tax is imposed on the payee. For taxable years beginning after December 29, 2022, this excise tax is equal to 25 percent of the amount by which the minimum required distribution for a year exceeds the amount actually distributed in that year. Notice 2023-54
However, if a failure to take a minimum required distribution is corrected by the end of the correction window (generally, the end of the second year that begins after the year of the missed minimum required distribution), the excise tax is reduced from 25 percent to 10 percent. Notice 2023-54
Roth IRAs
The tax treatment of Roth IRA distributions differs from traditional retirement accounts:
A nonqualified distribution from a Roth IRA under § 408A is included in gross income only to the extent that earnings are distributed. A qualified Roth IRA distribution (as defined in § 408A(d)) is excluded from gross income. Notice 2008-51
A distribution from a Roth IRA is considered a qualified distribution (and therefore tax-free) if it is: (i) made on or after the date on which the individual attains age 59½, (ii) made to a beneficiary (or to the estate of the individual) on or after the death of the individual, (iii) attributable to the individual’s being disabled, or (iv) a qualified special purpose distribution. However, a payment or distribution from a Roth IRA shall not be treated as a qualified distribution if it is made within the 5-taxable year period beginning with the first taxable year for which the individual made a contribution to a Roth IRA. IRC § 408A(d)
Early Withdrawal Penalties
If a distribution from an IRA or Roth IRA is made before the IRA or Roth IRA account owner attains age 59½, the distribution also is subject to a 10 percent additional tax under § 72(t) unless an exception applies. These exceptions include distributions made on account of death or disability, and distributions made as part of a series of substantially equal periodic payments for the life expectancy of the IRA holder. Notice 2008-51
Other exceptions to the early withdrawal penalty include distributions for:
Higher education expenses: Distributions to an individual from an individual retirement plan to the extent such distributions do not exceed the qualified higher education expenses of the taxpayer for the taxable year. Distributions shall not be taken into account if they are described in other exceptions or to the extent the early withdrawal penalty does not apply for other reasons. IRC § 72(t)
First home purchases: Distributions to an individual from an individual retirement plan which are qualified first-time homebuyer distributions. Distributions shall not be taken into account if they are described in other exceptions or to the extent the early withdrawal penalty does not apply for other reasons. IRC § 72(t)
Military service: Any qualified reservist distribution. IRC § 72(t)
Rollovers and Transfers
Tax may be deferred if the distribution is rolled over into an eligible retirement plan within 60 days of receipt. Sec. 402(a), (c). Distributions are taxed as ordinary income. Thus, a distribution from a qualified retirement plan is taxable to the distributee as ordinary income if it is not rolled over into an eligible retirement plan. Dawson U.S. Tax Court Opinions: Gina B. Weaver-Adams
Any portion of the distribution that is not rolled over to a qualified retirement account within the 60-day period is taxable as ordinary income. The taxable portion of the distribution may also be subject to the 10 percent additional tax on early distributions under section 72(t). Dawson U.S. Tax Court Opinions: Richard J. Juarez
Special Considerations for Non-Deductible Contributions
If an IRA owner made nondeductible contributions to the IRA, those contributions are recovered on a pro-rata basis and the distribution is partly included in and partly excluded from gross income under the rules of § 408(d) and § 72(e)(8). Notice 2008-51
No Exceptions for Financial Hardship
Section 61(a) provides that “gross income means all income from whatever source derived”. Section 408(d)(1) provides that, “[e]xcept as otherwise provided in this subsection, any amount paid or distributed out of an individual retirement plan shall be included in gross income by the payee or distributee”. Section 408(d) provides several exceptions to this rule–e.g., for rollover contributions, transfers incident to divorce, and distributions for charitable purposes–but there is no exception for distributions used to defray ordinary living expenses following the loss of a job or other misfortune. Dawson U.S. Tax Court Opinions: Rosella Marie Hill
Conclusion
In 2025, distributions from traditional retirement accounts will generally be taxable as ordinary income in the year received. Qualified distributions from Roth IRAs will remain tax-free if they meet certain requirements. Early withdrawals before age 59½ may be subject to a 10% additional tax unless an exception applies.
If you’re turning 73 in 2024, you’ll need to take your first required minimum distribution by April 1, 2025, and your second RMD by December 31, 2025. Both distributions will be taxable in 2025.
For specific advice regarding your personal situation, it’s recommended to consult with a qualified tax professional who can provide guidance based on your individual circumstances.
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