Required minimum distributions are one of the few retirement rules with a hard deadline, and missing it triggers one of the steepest penalties in the tax code.
If you turned 73 this year, or you're already past that age, the IRS expects you to pull a set amount out of your tax-deferred accounts by December 31.
Skip it, and the penalty is 25% of the amount you should have withdrawn.
The SECURE 2.0 Act cut it to 25%, and it drops to 10% if you catch the mistake and fix it quickly.
Even so, a 25% hit on a $20,000 distribution is $5,000 gone for a paperwork miss.
That's a costly lesson in a year when grocery bills and insurance premiums are already squeezing household budgets.
Here's the part that trips people up: the rule applies to traditional IRAs, 401(k)s, 403(b)s, and most other workplace plans, but not to Roth IRAs.
If you hold a Roth 401(k), the rules changed starting in 2024, and you no longer have to take distributions from it during your lifetime.
That's a meaningful break for savers who spent years funneling money into those accounts.
The math behind your number isn't random.
The IRS divides your account balance from the prior December 31 by a life expectancy factor from its Uniform Lifetime Table.
At 73, that factor is 26.5, so a $500,000 IRA would require roughly $18,868 to come out.
At 80, the factor shrinks to 20.2, pushing the required amount to about $24,752 on the same balance.
The older you get, the larger the percentage you must withdraw.
That withdrawal lands on your tax return as ordinary income.
For retirees on Medicare, a bigger distribution can raise your modified adjusted gross income past thresholds that trigger higher Part B and Part D premiums two years later.
That surcharge, known as IRMAA, catches plenty of people off guard because it hits well after the withdrawal year.
If you're still working and your 401(k) is at your current employer, you may be able to delay distributions from that specific plan until you retire, as long as you don't own more than 5% of the business.
That exception does not apply to IRAs or to old 401(k)s from former jobs, which still follow the standard age rules.
The IRS also allows what's called a qualified charitable distribution.
Once you're 70½ or older, you can send up to $105,000 per year directly from an IRA to a qualified charity.
That money counts toward your RMD and never shows up as taxable income, which can help keep you under the IRMAA thresholds.
One more trap: your first RMD has a special grace period.
If you turn 73 this year, you can delay that first withdrawal until April 1 of next year.
Do that, though, and you'll owe two distributions in the same tax year, stacking income that could push you into a higher bracket.
The practical move is to check your balance in early January, calculate the number, or ask your custodian to do it, and schedule the withdrawal well before December.
Brokerages get swamped in late December, and a processing delay near the deadline is not something you want to explain to the IRS.
Our take: the 25% penalty is avoidable with a calendar reminder and a phone call, yet thousands of retirees pay it every year simply because nobody told them the rule existed.
Final Thoughts
If you're near 73, treat this like a bill with a due date, because functionally, that's exactly what it is.