Millions of Americans spend decades stuffing money into 401(k)s and traditional IRAs, watching the balance climb, assuming the IRS will politely wait forever.
Once you hit a certain age, the government stops letting that money sit untouched and starts demanding its cut through something called a required minimum distribution, or RMD.
Here's the basic mechanic: at a set age, you must begin withdrawing a minimum amount from tax-deferred retirement accounts each year and pay income tax on it.
Miss that withdrawal, and the penalty is brutal — a 25% excise tax on the amount you should have taken, dropping to 10% if you fix it quickly.
In other words, the IRS doesn't just want the money eventually.
The age rule has shifted in recent years, which is where a lot of confusion lives.
Under current law, most people must start RMDs at age 73, and that threshold rises to 75 in 2033.
If you turned 72 before 2023, your start age was different.
This moving target has tripped up plenty of retirees who planned around the old rules and assumed they had extra years of tax-free growth.
The amount you must withdraw isn't a flat percentage — it's calculated by dividing your account balance by a life expectancy factor published by the IRS.
That factor changes every year, which means your required withdrawal generally grows as you age.
A rough way to think about it: in your early 70s you might pull around 3.8% of the balance, and by your mid-80s that figure can climb past 6%.
Traditional IRAs, 401(k)s, 403(b)s, and most workplace plans are covered.
Roth IRAs are not subject to RMDs during the owner's lifetime, which is a big reason some savers deliberately convert traditional dollars to Roth later in life.
Roth 401(k)s used to be included, but that changed starting in 2024.
There's a wrinkle for people still working.
If you're employed and contributing to a 401(k) at that job, you may be able to delay RMDs on that specific plan until you actually retire — but this exception generally doesn't apply if you own more than 5% of the business, and it never applies to IRAs.
The penalty math is where this gets real.
Say you were supposed to withdraw $10,000 and skipped it.
That's a $2,500 hit, on top of the income tax you'd owe once you eventually take the money out.
Fix the mistake within the correction window and the penalty can shrink to $1,000, but you're still paying for a clerical oversight that a calendar reminder could have prevented.
For households already squeezed by grocery bills, rent, and credit card rates, an RMD can feel like an unwelcome forced sale — especially in a down market, when you're liquidating investments at a bad time.
That's why some retirees take their distribution in kind, moving securities rather than cash, or time withdrawals earlier in the year to avoid a December scramble.
Know your start age, know which accounts are affected, and either automate the withdrawal or set a hard reminder.
If you have multiple IRAs, you can generally take the total from one or any combination — but workplace plans each have their own rules.
A tax professional or the IRS's own worksheets can confirm your specific number.
This isn't a loophole or a punishment — it's the bill coming due on decades of deferred taxes.
Treat the deadline like any other recurring expense, and it stays boring.
Final Thoughts
Ignore it, and the penalty quietly becomes the most expensive oversight of your retirement.