If you turned 73 this year, the IRS has a message you probably won't love: it's time to start withdrawing from your retirement accounts, whether you need the cash or not.
These withdrawals are called Required Minimum Distributions, or RMDs.
They apply to traditional IRAs, 401(k)s, and most other tax-deferred workplace plans.
Miss one, and the penalty is steep — 25% of the amount you should have taken, dropping to 10% if you fix it quickly.
Here's the part that catches people off guard.
The IRS does, using a formula based on your account balance and an age factor from an official life expectancy table.
At 73, that divisor is about 26.5, meaning you must pull roughly 3.8% of your balance.
By your mid-80s, the percentage climbs past 6%.
A $500,000 IRA at 73 forces out nearly $19,000 in year one.
If you're still working, collecting Social Security, or sitting in a higher bracket, that extra income can push more of your Social Security benefits into the taxable column and bump you into a pricier Medicare premium tier.
Your first RMD is due by April 1 of the year after you turn 73 — but if you delay it, you'll owe two distributions in the same tax year.
That double hit can spike your taxable income and your Medicare premiums two years later.
Every RMD after that is due by December 31.
The penalty for skipping one isn't a slap on the wrist.
The IRS generally takes 25% of what you failed to withdraw, and that drops to 10% only if you catch the mistake and correct it within a specific window by filing Form 5329.
There's one genuinely useful escape hatch.
A qualified charitable distribution lets you send up to $105,000 per year (indexed for inflation) directly from an IRA to a qualified charity.
That money counts toward your RMD but never appears as taxable income on your return.
For retirees who don't need the cash, it's often the cleanest move available.
A few other things worth knowing: Roth IRAs have no RMDs during the owner's lifetime, which is a big reason they're popular.
Still-working exceptions can apply to a current employer's 401(k) in some cases, but not to IRAs.
And if you own multiple IRAs, you can take the total from any combination of them — but each 401(k) must be handled separately.
Spouses who inherit an IRA can sometimes roll it into their own, which resets the rules.
Most other heirs now face a 10-year withdrawal window under the SECURE Act, which can collide badly with their own peak earning years.
The takeaway: this isn't a set-it-and-forget-it item.
A quick check of your account balance and your bracket each fall can save real money.
My take: RMDs aren't a punishment, but they're also not automatic.
Final Thoughts
The people who plan around them — using charitable distributions, Roth conversions in low-income years, or simply timing withdrawals — tend to keep far more of their money than those who ignore the deadline until December.