If you turned 73 this year, the IRS has a message that most financial advisors say too quietly: you owe the government a slice of your retirement account, whether you need the money or not.
It's called a required minimum distribution, or RMD, and it's one of the few tax rules that punishes people for saving too well.
Once you hit a certain age — 73 for most people now, rising to 75 in 2033 — you must withdraw a minimum amount from traditional IRAs and most workplace plans every year.
Skip it, and the penalty is 25% of what you should have taken, dropping to 10% if you fix it fast.
The IRS doesn't care that you'd rather let the money compound.
It's calculated by dividing your account balance at the end of the prior year by a life expectancy factor the IRS publishes.
At 73, that divisor is about 26.5, so a $500,000 account means roughly $18,900 comes out whether you're ready or not.
Because a lot of retirees spent the last few years watching balances swing wildly, and RMDs are based on a year-end snapshot.
A market rally can push your required withdrawal higher and your tax bill with it.
A crash doesn't lower the percentage — it just shrinks the base.
Then there's the part nobody advertises: the income can bump you into a higher tax bracket, raise your Medicare Part B and D premiums through IRMAA surcharges, and make more of your Social Security taxable.
A single withdrawal can ripple through three separate bills.
Accountants, tax preparers, and the growing shelf of "RMD calculator" tools — some free, some selling annuities on the back end.
Custodians like Fidelity and Vanguard will happily withhold taxes for you.
The IRS gets its revenue earlier than it otherwise would.
You can take the whole RMD in one lump or split it across the year.
You can't roll it into a Roth IRA, but you can convert other amounts.
If you have multiple IRAs, you can total the RMDs and pull from one account.
Workplace 401(k)s are trickier — each plan generally needs its own distribution.
If you're still working past 73 and don't own more than 5% of the company, you may be able to delay RMDs on that employer's plan.
And if you inherited an IRA from someone who died in 2020 or later, different rules apply, and they're strict.
Qualified charitable distributions are the escape hatch worth knowing.
You can send up to $100,000 per year directly from an IRA to charity, and it counts toward your RMD without adding to your taxable income.
For retirees who don't need the cash, that single move can neutralize much of the pain.
You can't do a QCD from a 401(k), and the check must go straight to the charity.
Do it in January and you have room to adjust.
The bottom line: RMDs aren't a scam, but they are a trap for people who don't plan.
The rule exists to collect decades of deferred taxes, and it's working exactly as designed.
Final Thoughts
The people who navigate it best treat the withdrawal as a year-round budgeting item, not an April surprise — because the penalty for forgetting is real, and the tax bill doesn't care whether the market was kind to you.