If you turned 73 in 2024, the IRS expects a slice of your retirement account this year — and the penalty for skipping it is one of the harshest in the tax code.
It's called a required minimum distribution, or RMD, and it forces you to withdraw a minimum amount from traditional IRAs and most workplace retirement plans once you hit a certain age.
Miss the deadline, and the IRS charges 25% of the amount you should have taken.
That can be tens of thousands of dollars erased from your nest egg for a paperwork slip, not a market crash.
The SECURE 2.0 law pushed the starting age to 73 for anyone born from 1951 through 1959, and to 75 for those born in 1960 or later.
Your first withdrawal is due by April 1 of the year after you turn 73 — but after that, every distribution is due by Dec. 31.
That first-year grace period is a trap dressed as a gift.
If you delay your first RMD to early the following year, you still owe a second one by that December.
Two taxable withdrawals land in the same tax year, which can shove you into a higher bracket and raise your Medicare Part B premium two years later.
Brokerage firms collect fees on assets that stay parked, and the rules have been rewritten twice in recent years, creating confusion that sells advisory services.
One widely cited estimate put the penalty revenue at more than $1 billion a year before Congress softened the fine from 50% to 25%.
The amount you must pull out is based on your account balance at the end of the prior year divided by a life expectancy factor the IRS publishes.
At 73, that factor is about 26.5, so a $500,000 IRA requires roughly $18,900.
It doesn't matter whether markets were up or down — the calculation doesn't care about your feelings or your timing.
Roth IRAs have no lifetime RMDs for the original owner, which is a big reason they've become popular.
But a Roth 401(k) does require withdrawals unless it's rolled into a Roth IRA.
If you're still working past 73, a workplace plan may let you defer — but that exception doesn't cover IRAs, and it doesn't apply if you own more than 5% of the business.
Set a calendar reminder for early December, not April.
Consider a qualified charitable distribution, which can satisfy your RMD and keep the money out of taxable income if you're 70½ or older.
And if you have several IRAs, you can take the total from one account — but inherited IRAs follow separate rules and generally must be emptied within 10 years.
The penalty can be waived if you catch the miss and file the right form, but that's a fix, not a plan.
Our take: this is a deadline problem, not a wealth problem, and it punishes the disorganized far more than the poor.
Anyone with a seven-figure traditional IRA should be running the tax math years before 73, not scrambling in December.
Final Thoughts
Treat the RMD like a bill with a brutal late fee — because that's exactly what it is.