If you turned 73 this year, the IRS has a message that arrives whether you open the envelope or not: it wants its cut of your retirement account.
Required Minimum Distributions, or RMDs, are the government's way of finally collecting taxes on money you sheltered in a 401(k) or traditional IRA for decades.
Miss the deadline, and the penalty is steep — 25% of the amount you should have withdrawn, dropping to 10% if you fix it quickly.
The math is simpler than most people fear.
Your account balance on December 31 of the prior year gets divided by a life expectancy factor the IRS publishes each year.
At 73, that factor is about 26.5, so a $500,000 balance means withdrawing roughly $18,900.
At 80, the factor shrinks to around 20.2, and the required slice of the same balance jumps past $24,000.
The older you get, the larger the percentage the government demands.
Here's where retirees get tripped up: the deadline for your first RMD is April 1 of the year after you turn 73, not your birthday.
Take that grace period and you'll owe two withdrawals in the same calendar year — one for the year you turned 73 and one for the following year.
That doubling can push you into a higher tax bracket, raise your Medicare Part B and Part D premiums two years later, and make more of your Social Security benefits taxable.
Traditional IRAs and 401(k)s require withdrawals.
Roth IRAs do not, which is a big reason many advisors suggest converting money to a Roth during lower-income years before RMDs begin.
If you're still working past 73 and own less than 5% of the company, a workplace 401(k) can often wait until you actually retire — but that exception doesn't apply to IRAs.
You just have to move it out of the tax-deferred account and pay the tax.
A popular workaround is a Qualified Charitable Distribution, which sends up to $105,000 per year directly from an IRA to charity.
It counts toward your RMD and never shows up as taxable income, which can keep Medicare premiums and Social Security taxation in check.
People with multiple IRAs forget each account has its own calculation, though the total can be pulled from any one of them.
Beneficiaries who inherited accounts after 2019 generally face a 10-year window to empty them, with their own annual RMDs layered on top.
And anyone who simply forgets gets a letter from the IRS — not a reminder, a bill.
Set a calendar alert for early December, not April.
Fund managers get swamped at year-end, and a lost form or a slow transfer can turn a routine withdrawal into a penalty.
Automating the distribution through your custodian is the cheapest insurance you'll ever buy.
Retirement accounts were never tax-free — just tax-delayed.
Treat the RMD as a scheduled bill rather than a surprise, and it becomes a manageable chore instead of a budget wrecking ball.
Final Thoughts
The people who plan a decade ahead are the ones who keep more of what they saved.