If you turned 73 this year, or you're already there, the IRS has a message that comes with a price tag: take money out of your retirement accounts, or hand over a chunk of it as a penalty.
These forced withdrawals are called required minimum distributions, or RMDs.
They apply to traditional IRAs, 401(k)s, and most other tax-deferred retirement plans.
The rule exists because the government let that money grow untaxed for decades, and now it wants its cut.
The penalty for skipping an RMD is one of the harshest in the tax code: 25% of the amount you should have withdrawn.
Miss it by more than two years, and it can drop to 10% if you fix it quickly, but that's still money gone for no reason.
The deadline most people get wrong is the very first one.
For your first RMD, you can delay the withdrawal until April 1 of the following year.
Sounds generous, until you realize that means taking two taxable distributions in the same calendar year, which can push you into a higher bracket and raise your Medicare premiums.
There is no grace period, no extension, and no "I'll do it Monday." If the money doesn't leave the account by year-end, the penalty clock starts.
Here's the part that trips up retirees with multiple accounts.
For IRAs, you can total up all your RMDs and take the full amount from any one IRA you choose.
Each 401(k) must pay out its own RMD separately, so you can't satisfy one plan's requirement with a withdrawal from another.
The IRS publishes life expectancy tables, and you divide your account balance by a factor based on your age.
At 73, that factor is about 26.5, so a $500,000 balance means an RMD of roughly $18,900.
The older you get, the smaller the factor, and the bigger the percentage you're forced to take.
If you don't need the cash, you can have taxes withheld directly from the distribution so you're not scrambling at filing time.
You can also make a qualified charitable distribution, sending up to $105,000 in 2024 straight from your IRA to a charity.
That counts toward your RMD and never shows up as taxable income.
One more thing worth checking: the age changed recently.
It used to be 70½, then 72, and now it's 73 for most people, with 75 kicking in for those born in 1960 or later.
Plenty of people are still working off outdated information, and some who already took their first RMD under the old rules may have created a taxable mess without realizing it.
If you have a retirement account and you're anywhere near 73, log in this week and confirm your balance, your factor, and your deadline.
Automating the withdrawal through your custodian is the simplest way to never think about it again.
My take: RMDs are one of the few retirement rules where doing nothing is the expensive option.
Final Thoughts
A 25% penalty dwarfs almost any investment mistake you could make, and it's entirely avoidable with a calendar reminder and ten minutes of paperwork.