If you were born in 1951 or later, the year you turn 73 comes with a deadline most people don't know about until an accountant mentions it.
It's called a required minimum distribution, or RMD, and it forces you to start pulling money out of traditional 401(k)s and IRAs whether you need the cash or not.
The rule isn't new, but the age keeps shifting.
The SECURE 2.0 Act pushed the starting age from 72 to 73 for most people, and to 75 for anyone born in 1960 or later.
That sounds generous, but it also means the IRS is giving you a few extra years to forget the deadline exists.
Here's the part that stings: miss an RMD and the penalty is 25% of the amount you should have withdrawn.
Miss it again, or ignore an IRS notice, and it can jump to 50%.
The government treats forgotten withdrawals less like an oversight and more like a revenue stream.
The IRS divides your account balance from the prior December 31 by a life expectancy factor from its Uniform Lifetime Table.
At 73, that divisor is about 26.5, so a $500,000 IRA forces out roughly $18,900 that year.
The percentage climbs as you age, which is why people in their 80s often pull out well over $50,000 annually.
That withdrawal gets added to your taxable income for the year.
For retirees on Medicare, a bigger income can trigger higher Part B and Part D premiums through the income-related monthly adjustment amount, or IRMAA.
So a forced withdrawal you didn't want can raise your health costs two years later.
This is the detail financial planners say catches clients off guard most often.
There are workarounds, though none are free.
Qualified charitable distributions let you send up to $105,000 per year directly from an IRA to charity, which satisfies the RMD without adding to your taxable income.
Roth conversions before RMDs begin can shrink future required amounts, but you pay tax on the conversion now.
And if you're still working past 73, a workplace 401(k) at your current employer may be exempt, but that exception does not apply to IRAs.
The IRS, obviously, since RMDs force tax revenue out of accounts that would otherwise compound untaxed for decades.
Brokerages and fund companies benefit too, because every forced withdrawal is a chance to sell you a managed account, an annuity, or an advisory fee.
And the penalty structure means the rules are enforced far more aggressively than most retirement guidance.
The practical takeaway is boring but real: know your start year, mark your deadline, and remember that the custodian will often calculate the amount for you — but the responsibility to take it is yours alone.
Automating the distribution is one of the few genuinely free ways to avoid a costly mistake.
My honest read: RMDs are a tax collection mechanism dressed up as retirement planning, and the 25% penalty is wildly disproportionate to the actual harm.
If you're approaching 73, spend an hour with a fee-only advisor before December 31.
Final Thoughts
That hour is cheaper than the alternative.