If you have a traditional IRA or a 401(k) from an old job, there is a deadline lurking in your future that a lot of people learn about the hard way.
It is called a required minimum distribution, or RMD, and it works exactly the way it sounds.
At some point, the government stops letting that money sit there untaxed and starts requiring you to pull some of it out each year.
Under current rules, most people must begin withdrawals for the year they turn 73.
If you were born in 1960 or later, that start line shifts to age 75.
Miss the deadline and the penalty is steep, though it got less painful than it used to be.
Here is how the math works in plain terms.
The IRS takes your account balance at the end of the previous year and divides it by a number based on your age, taken from an official life expectancy table.
At 73 that divisor is about 26.5, which means you would withdraw roughly 3.8% of the balance.
The percentage climbs as you get older, so by your mid-80s you are pulling out noticeably more each year.
It lands in your checking account, and that is the whole point for the IRS, because withdrawals from traditional retirement accounts count as taxable income.
That can bump you into a higher bracket, raise your Medicare premium two years down the road, and even affect how much of your Social Security gets taxed.
None of that is a reason to panic, but it is a reason to plan the withdrawal instead of guessing in December.
A few traps catch people every single year.
The first is forgetting that each IRA has its own deadline, though you are allowed to take the total from one account as long as the combined amount is correct.
Workplace 401(k) plans work differently and generally cannot be pooled that way.
The second trap is the first-year rule: you can delay your very first withdrawal until April 1 of the following year, but that means taking two taxable withdrawals in the same calendar year, which can push you into a bracket you did not expect.
For anyone still working past 73, there is a narrow exception.
If you are still employed and not a 5% owner of the business, you may be able to skip RMDs on that specific employer's plan until you actually retire.
That exception does not cover IRAs or accounts from former employers.
The penalty for missing a withdrawal used to be 50% of the shortfall, which felt almost punitive.
Congress cut it to 25%, and it drops to 10% if you catch the mistake and fix it within a two-year window.
Most brokerages will calculate the number for you and can set up automatic payments, which is the simplest defense against a costly oversight.
Find out your start age, check whether your brokerage offers automatic distributions, and treat the withdrawal as part of your annual tax planning rather than an afterthought.
This is one of those rules that rewards ten minutes of attention.
Final Thoughts
Set a calendar reminder, make a phone call, and let the math work quietly in the background instead of surprising you at tax time.