If you're 73 or older with money in a traditional IRA or 401(k), the IRS expects you to pull out a minimum chunk every year.
Miss it, and the penalty stings: 25% of the amount you should have withdrawn, dropping to 10% if you fix it fast.
That rule is called a required minimum distribution, or RMD.
It's not optional, and it's not a suggestion.
The government wants its tax money, and this is how it collects from accounts you never paid taxes on.
You can't just take the money whenever you feel like it.
Most retirees must withdraw by December 31 each year, and the amount is based on your account balance and an IRS life-expectancy table.
The older you get, the larger the percentage you're forced to take.
Your first RMD comes with a special break: you can delay it until April 1 of the following year.
Sounds generous, until you realize that means two taxable withdrawals land in the same calendar year.
That can shove you into a higher bracket and raise what you owe on Social Security.
The penalty math is brutal in plain terms.
Owe a $10,000 distribution and skip it, and you're looking at $2,500 gone.
The IRS has softened this in recent years, but it's still one of the harshest penalties in the tax code for a simple oversight.
There's another wrinkle that catches newer retirees.
If you're still working and your 401(k) is with your current employer, you may be able to skip RMDs on that plan until you actually retire.
People with multiple accounts often assume they can take the full amount from one place.
That's allowed for IRAs, but each 401(k) generally has to pay out its own RMD separately.
Mixing this up creates penalties on accounts you thought you'd already handled.
A big withdrawal can push you into a higher bracket, increase your Medicare premiums, and make more of your Social Security taxable.
Some retirees who don't need the cash reinvest it in a regular brokerage account, where it can grow without the same forced timeline.
Set a calendar reminder for early December, not late December.
Confirm your account balance with your custodian, ask them to calculate the number, and let them handle the withdrawal.
Most brokerages will set up automatic distributions so you never have to think about it again.
If you've already missed one, don't panic.
File Form 5329, explain the reason, and request a waiver.
The IRS often grants it for honest mistakes, especially first-timers.
Our take: this is one of the few retirement rules where a five-minute phone call can save you thousands.
Automate it, check the math once a year, and treat the deadline like a bill you can't ignore.
Final Thoughts
The tax man isn't checking whether you needed the money, only whether you took it.