If you turned 73 this year, the IRS has a message you may not love: it's time to start pulling money out of your retirement accounts, whether you need the cash or not.
It's called a Required Minimum Distribution, or RMD, and it applies to most traditional IRAs, 401(k)s, and similar workplace plans.
The government let you skip taxes on that money for decades.
Each year, you must withdraw a minimum amount based on your account balance and a life-expectancy factor the IRS publishes.
Skip it, and the penalty is steep: 25% of what you should have taken, though it can drop to 10% if you fix the mistake quickly.
The math catches many retirees off guard.
Say you have $500,000 in a traditional IRA and your divisor is 26.5.
That's roughly $18,868 you must move out this year.
You don't have to spend it, but it leaves the tax-sheltered account and lands in your taxable income, which can bump up your Medicare premiums and even tax more of your Social Security.
That last part is where people get burned.
A bigger RMD year can push your modified adjusted gross income over a threshold, triggering an "IRMAA" surcharge on Part B and Part D premiums two years later.
A single withdrawal decision can quietly raise your health costs down the road.
Not every account follows the same rules.
Roth IRAs have no RMDs during your lifetime, which is a big reason some savers convert traditional money to Roth in lower-income years.
If you're still working and own less than 5% of the company, your current employer's 401(k) may also be exempt until you retire.
The first-year deadline trips people up too.
You can delay your very first RMD until April 1 of the following year, but then you'd owe two distributions in that same tax year, possibly shoving you into a higher bracket.
Most advisors suggest just taking it on time.
Qualified charitable distributions let you send up to $105,000 per year directly from an IRA to charity, and that money counts toward your RMD without adding to taxable income.
Timing withdrawals across the year, or doing partial Roth conversions before RMDs begin, can also help.
One more thing: if you inherited an IRA from someone who died in 2020 or later, you likely fall under the 10-year rule, which has its own withdrawal requirements that many beneficiaries are still learning the hard way.
Talk to a tax professional about your specific situation before the December deadline sneaks up.
The bottom line: an RMD isn't a punishment, but it is a bill you can't dodge.
A little planning in your late 60s can save you thousands in taxes and Medicare surcharges later.
Final Thoughts
Treat the calendar as part of your budget, not an afterthought.