Every January, financial advisors field the same calls from retirees in a mild panic.
They got a letter from their brokerage or IRA custodian reminding them that a required minimum distribution is due by December 31 — and they'd forgotten about it since the previous spring.
Here's the part that catches people off guard: miss that deadline, and the penalty isn't a slap on the wrist.
The IRS charges 25% of the amount you should have withdrawn, dropping to 10% only if you fix it fast.
On a $30,000 missed RMD, that's $7,500 gone.
Just a penalty paid to the government for a withdrawal you never made.
The rules themselves changed recently, which is part of the confusion.
Under the SECURE 2.0 Act, the age at which RMDs begin moved to 73 for most people (it rises to 75 in 2033).
If you turned 72 in 2023 or later, you're likely in the new bracket.
But plenty of retirees are still operating on outdated information, and custodians don't always spell out the difference clearly in those annual statements.
Where people really get hurt is the December crunch.
Waiting until year-end means you're forced to sell whatever the market gives you that day, whether it's a good price or not.
If you hold a concentrated stock position or a fund that's down, you lock in the loss.
Spreading withdrawals across the year — or at least taking them earlier — gives you some control over timing and taxes.
There's also the aggregation rule that trips up anyone with multiple IRAs.
You can total your RMDs across all traditional IRAs and take the full amount from just one account.
That flexibility doesn't extend to 401(k)s, which must be calculated and withdrawn separately from each plan.
Mix those up and you can be short without realizing it.
And then there's the group that's easy to overlook: people who inherited IRAs.
Under the 10-year rule for many non-spouse beneficiaries, annual RMDs may still apply during that window if the original owner had already started taking distributions.
Skip them, and the same 25% penalty applies.
This is one of the most commonly missed requirements, according to CPA firms that clean up the messes afterward.
The practical move is boring but effective.
Set a calendar reminder for early in the year, not December.
Ask your custodian to automate the distribution if they offer it.
And if you're charitably inclined, a qualified charitable distribution can satisfy your RMD while keeping the money out of your taxable income — a detail worth asking about before you write any checks.
The penalties exist because the IRS wants its tax revenue on money that was never taxed going in.
Whether that's fair is a separate argument.
What's not debatable is that the deadline doesn't move, and the cost of forgetting it is real money out of your pocket.
If there's a lesson here, it's that retirement accounts reward attention, not good intentions.
Final Thoughts
A five-minute check in February beats a frantic phone call in late December — and it beats writing a check to the IRS for a mistake that was entirely avoidable.