If you turned 73 this year, the IRS has a message: it wants its cut of your retirement accounts.
Required minimum distributions, or RMDs, force you to withdraw a set amount from traditional IRAs and 401(k)s each year once you hit that age.
Miss the deadline and the penalty is steep — 25% of the amount you should have taken, dropping to 10% if you fix it quickly.
The rule is simple but the math catches people off guard.
Your RMD is based on your account balance at the end of the previous year divided by a life expectancy factor the IRS publishes.
A $500,000 IRA at age 73 works out to roughly $18,900 you must pull out, whether you need the cash or not.
That withdrawal counts as ordinary income.
It can push you into a higher tax bracket, raise your Medicare Part B and D premiums through IRMAs, and even trim Social Security benefits if you're not yet at full retirement age.
Retirees who spent decades saving are often surprised that the tax bill arrives all at once.
Your first RMD is due by April 1 of the year after you turn 73, but every year after that the money must come out by December 31.
Skip that first-year grace period trick and you'll be taking two distributions in one tax year, which can spike your bill.
There are a few legitimate ways to soften the blow.
Qualified charitable distributions let you send up to $105,000 per year directly from an IRA to charity, and that amount counts toward your RMD without adding to taxable income.
If you're still working and own a 401(k) at that job, you may be able to delay RMDs from that specific plan until you retire.
Roth IRAs have no RMDs during your lifetime, which is why some savers convert traditional balances to Roth in their 60s.
You pay tax on the conversion now, but the account can then grow untouched.
For married couples, the year after a spouse dies is often called the widow's penalty year, since the survivor files as single and RMDs hit harder.
One more trap: the 10-year rule for inherited IRAs.
Most non-spouse heirs must empty an inherited account within a decade, and in many cases they have to take annual distributions along the way.
People who inherited in 2020 or later have been waiting on final rules, and the IRS has been issuing penalties waivers as guidance settles.
The practical move is to check your balance in January, not December.
Know your number early, decide whether you'll take it as cash or move investments in kind, and talk to a tax professional before you're up against the deadline.
Automating the withdrawal helps, but it won't fix a bracket problem.
The bottom line: RMDs aren't optional, but they aren't a punishment either.
A little planning in your late 60s can save you thousands in taxes and Medicare surcharges later.
Final Thoughts
Treat the deadline like a bill you actually want to pay on time.