If you turned 73 this year, the IRS has a message for you: it's time to start withdrawing from your retirement accounts, whether you need the cash or not.
These withdrawals are called required minimum distributions, and they apply to traditional IRAs and most workplace retirement plans like 401(k)s.
Miss one, and the penalty is steep — 25% of the amount you should have taken, though it drops to 10% if you fix it quickly.
The math catches plenty of retirees off guard.
Your RMD is calculated by dividing your account balance at the end of the previous year by a life expectancy factor the IRS publishes.
The older you get, the larger the percentage you must pull out.
If your nest egg grew nicely in a strong market, your forced withdrawal grows right along with it.
Here's the part that stings: that money is taxable as ordinary income.
A big RMD can push you into a higher bracket, raise your Medicare Part B and Part D premiums through income-related surcharges, and even make more of your Social Security benefits taxable.
Retirees who saved diligently for 40 years sometimes feel like they're being penalized for doing the right thing.
There are legitimate ways to soften the blow.
The most popular is a qualified charitable distribution, which lets you send up to $105,000 per year directly from your IRA to a charity.
That money counts toward your RMD but never shows up as income on your tax return, which can keep your Medicare premiums lower.
If you already give to your church or a favorite nonprofit, this is close to a free lunch.
By moving money from a traditional IRA to a Roth in years when your income is lower, you shrink the balance that future RMDs are based on.
You pay tax now at a rate you choose, instead of later at a rate the IRS chooses for you.
It doesn't work for everyone, and it's worth running the numbers with a tax professional before pulling the trigger.
You generally have until December 31 each year to take your RMD, but your very first one comes with a special grace period: you can delay it until April 1 of the following year.
Do that, though, and you'll take two taxable distributions in the same calendar year, which can spike your tax bill.
Most advisors suggest taking the first one on time to avoid the double-up.
If you have multiple traditional IRAs, you can total up the RMDs and take the money from whichever account you like.
But 401(k)s don't get that flexibility — each plan must pay out its own RMD separately.
And if you inherited an IRA from someone who wasn't your spouse, different rules apply, often requiring you to empty the account within 10 years.
The simplest defense is a calendar reminder.
Set one for early December, confirm your custodian has calculated the right amount, and double-check that the withdrawal actually happened.
Automatic distribution plans through your brokerage can handle it for you, but verify each year — custodians occasionally make mistakes, and the penalty lands on you, not them.
The bottom line: RMDs aren't optional, but they also aren't a reason to panic.
A little planning in your early 70s can save you thousands in taxes and Medicare surcharges down the road.
Final Thoughts
Treat the deadline like any other bill — boring, predictable, and much cheaper when you don't ignore it.