If you turned 73 last year, the IRS has a message: it wants its cut, and it wants it now.
Required minimum distributions, or RMDs, force retirees to pull money out of traditional 401(k)s and IRAs whether they need the cash or not.
Miss the deadline and the penalty is a 25% excise tax on the amount you should have withdrawn — dropping to 10% if you fix it within a correction window.
The rule applies to most workplace plans and traditional IRAs once you hit 73, though Roth IRAs are exempt for the original owner.
The first deadline is April 1 of the year after you turn 73, and every year after that lands on December 31.
That April grace period sounds generous until you realize it can shove two taxable distributions into a single tax year.
That withdrawal isn't free money — it's taxable income stacked on top of Social Security, pensions, and any part-time work.
A large RMD can push you into a higher bracket, trigger higher Medicare premiums through IRMAA surcharges, and shrink what you keep.
For someone with a seven-figure account, a bad market year doesn't excuse the withdrawal.
You still sell at whatever price the market offers.
You divide your account balance by a life expectancy factor from IRS tables, but the formula changes depending on your age, your spouse's age if you're married, and whether you're dealing with an inherited account.
Brokerages usually calculate this for you, but they don't guarantee it's right, and the taxpayer is the one holding the bag.
There's also a quieter trap: the five-year rule and the ten-year rule for inherited IRAs.
Non-spouse heirs generally must empty an inherited IRA within a decade, which can force large taxable withdrawals on people in their peak earning years.
Financial firms profit from managing this complexity, which is worth remembering when they pitch you a product to "solve" it.
If you're still working and don't own more than 5% of the business, you may be able to delay RMDs from a current employer's 401(k).
Qualified charitable distributions let you send up to $105,000 per year straight to charity, potentially satisfying the RMD without adding to taxable income.
And converting portions of a traditional IRA to a Roth in low-income years can reduce future forced withdrawals — though that creates its own tax bill today.
The takeaway: this isn't a rich-person problem.
Anyone with a decent retirement account hits it, and the penalties are real.
Check your balance, confirm your birth year, and don't assume your brokerage has your back.
Our take: RMDs exist to collect taxes that were deferred for decades, and the rules are stacked in the government's favor.
Final Thoughts
Treat the deadline like a bill, not a suggestion, and plan the tax hit before December sneaks up.