Millions of Americans over 73 are sitting on a quiet tax trap, and the window to fix it is closing fast.
Required minimum distributions, or RMDs, force retirees to pull money out of traditional IRAs and 401(k)s whether they need the cash or not.
Miss the deadline, and the IRS can hit you with a penalty that recently jumped to 25% of the amount you should have withdrawn.
The rule is simple on paper: once you turn 73, you must take a minimum amount from most pre-tax retirement accounts each year.
The exact figure is calculated from your account balance and an IRS life expectancy table.
But the execution is where people stumble, especially those juggling multiple accounts across different brokerages.
The deadline for most retirees is December 31.
If that date passes and you haven't withdrawn enough, the shortfall gets penalized.
The good news is the penalty dropped from 50% to 25% under recent law changes, and it can fall to 10% if you correct the mistake quickly.
Still, that's real money vanishing from your nest egg.
Here's the part that catches people off guard: each account has its own RMD.
If you hold three IRAs at three different firms, you can generally pool the withdrawals and take the total from one account.
But 401(k)s don't play by the same rules.
Each workplace plan typically requires its own separate distribution, and you can't satisfy a 401(k) RMD with an IRA withdrawal.
For your very first RMD, you get a one-time option to delay it until April 1 of the following year.
Sounds like a gift, but it means taking two taxable distributions in the same calendar year.
That can push you into a higher bracket, spike your Medicare premiums two years later, and increase the taxable portion of your Social Security.
Roth IRAs have no RMDs during the owner's lifetime, which is a major perk.
But Roth 401(k)s historically did require them, though that changed starting in 2024.
Many savers don't realize the rules for workplace Roth accounts shifted, so it pays to confirm with your plan administrator.
Most large brokerages let you set up automatic annual distributions, which removes the human error that causes most penalties.
If you've already taken your RMD, double-check the math against your year-end balance, since market swings can change what you owe.
If you miss the deadline, don't panic and don't ignore it.
File Form 5329, explain the reason, and request a waiver.
The IRS grants many of these when taxpayers act quickly.
Waiting, though, only makes the penalty harder to unwind.
One more thing worth checking: if you're still working past 73 and contributing to a 401(k) at your current employer, you may be able to skip RMDs on that specific plan.
That exception doesn't apply to IRAs or old workplace accounts, so it's a narrow but valuable break.
Our take: RMDs aren't a wealth grab by the IRS so much as a scheduling problem most people ignore until December.
Set a calendar reminder now, verify your account list, and automate the withdrawal.
Final Thoughts
A few minutes of planning beats handing a quarter of your shortfall to the government.