If you turned 73 last year, the IRS has a message for you: it wants its cut, and it is not planning to wait.
Required minimum distributions, the annual withdrawals the government forces out of tax-deferred retirement accounts, are back in the spotlight as a new round of retirees hits the age trigger for the first time.
Once you reach a certain age, you must pull a minimum amount out of traditional IRAs and most 401(k)s each year and pay income tax on it.
Miss the deadline and the penalty is 25% of what you should have withdrawn — dropping to 10% only if you fix it quickly.
A $10,000 missed withdrawal can cost you $2,500, a fee that makes a credit card late charge look like pocket change.
The age you must start has moved around in recent years.
It was 70½ for decades, then 72 under a 2019 law, and now 73 for most people under a 2023 change.
Another bump to 75 is scheduled for those born in 1960 or later.
Plenty of Americans are genuinely confused about which rule applies to them, and the IRS has not made the math any friendlier.
The first-year deadline trips up the most people.
You generally have until April 1 of the following year to take your very first withdrawal.
Sounds generous, until you realize that taking two distributions in the same calendar year can shove you into a higher tax bracket and even raise your Medicare premium.
The "gift" of a delayed first payment is often a trap.
There is also a quieter risk: the accounts you might forget.
If you inherited an IRA from someone who was already taking distributions, you are likely on the hook too.
Beneficiaries who miss those withdrawals have been hit with penalties, and the rules here changed recently enough that even some financial professionals are still catching up.
The government, obviously, which collects taxes it deferred for decades.
But also the custodians — the brokerages and fund companies holding your money.
Many charge fees based on assets under management, so every dollar you are forced to withdraw is a dollar no longer generating revenue for them.
Some have gotten better at automatic distributions, but only if you sign up.
The practical move is boring but effective.
Check your account statements for an RMD notice.
Ask your custodian to calculate the exact figure — do not guess, because it varies by age and account balance.
Consider a automatic withdrawal schedule so you never miss a date.
And if you do not need the money, remember you can still reinvest it in a taxable account, though you will owe tax on the way out.
Our take: the RMD penalty is one of the few financial mistakes that is entirely avoidable, yet thousands of retirees stumble into it every year because the rules keep shifting and nobody sends a loud reminder.
Final Thoughts
Treat the deadline like a bill you actually owe, because to the IRS, that is exactly what it is.