If you turned 73 this year, the IRS has a message you probably won't love: it's time to start pulling money out of your retirement accounts, whether you need it or not.
Those withdrawals are called Required Minimum Distributions, or RMDs, and they apply to most traditional 401(k)s and IRAs.
The rule has been around for decades, but the starting age keeps shifting.
Thanks to a 2022 law, most savers now begin RMDs at 73.
A few people born before 1951 fell under the old age of 72.
If you're still working and own less than 5% of the company sponsoring your 401(k), you may be able to delay withdrawals from that specific plan until you retire.
Here's the part that trips people up: an RMD isn't optional.
If you skip it, the penalty is a 25% excise tax on the amount you should have withdrawn, dropping to 10% if you fix it quickly.
On a $20,000 missed distribution, you could owe $5,000 to the IRS for doing nothing at all.
The amount you must take changes every year.
It's based on your account balance at the end of the prior year and a life expectancy factor from an IRS table.
Rough math: a 75-year-old with $500,000 in an IRA might need to withdraw around $20,000.
The percentage climbs as you age, so the forced withdrawals get bigger over time.
Because RMDs are taxed as ordinary income.
A large withdrawal can push you into a higher bracket, raise your Medicare Part B and Part D premiums through income-related surcharges, and even affect how much of your Social Security is taxed.
Retirees on tight budgets sometimes find their monthly costs jump simply because the IRS made them cash out.
They have no RMDs during the owner's lifetime, which is a major reason some savers convert traditional balances to Roth before age 73.
A conversion means paying tax now to avoid forced, taxed withdrawals later.
It's not right for everyone, but it's worth running the numbers with a tax pro.
There are a few practical moves to consider.
You can take your RMD as a lump sum or spread it across the year.
You can have taxes withheld directly from the distribution so you're not scrambling at filing time.
You can also satisfy an RMD by donating up to $105,000 directly to charity through a qualified charitable distribution, which keeps that amount out of your taxable income entirely.
One more detail people miss: each IRA has its own RMD, but you're allowed to take the total from one account or several.
That flexibility does not apply to 401(k)s, which must be handled plan by plan.
If you inherited an IRA, different rules apply and the deadlines can be stricter.
RMDs are not a tax you can dodge by leaving money alone.
They're a scheduled withdrawal the government requires, and ignoring them creates penalties that no household budget can absorb.
Our take: mark your birthday on the calendar and call your plan administrator or broker the year you hit 73.
A 20-minute conversation now beats a five-figure tax bill later.
Final Thoughts
If your accounts are sizable, a one-time session with a tax professional is probably the cheapest financial advice you'll buy all year.