There's a deadline lurking inside your retirement account that the IRS enforces with one of the harshest fines in the tax code.
It's called a required minimum distribution, or RMD, and it forces retirees to pull money out of traditional 401(k)s and IRAs whether they need the cash or not.
Miss the deadline and the penalty is 25% of the amount you should have withdrawn.
In some cases, that drops to 10% if you fix the mistake fast enough.
Either way, it's real money vanishing for a paperwork slip.
The rules kicked in at age 73 for most people after the SECURE 2.0 Act changed the old threshold from 72.
If you hit 73 in 2025, you're on the clock.
The first deadline is April 1 of the following year, and here's the trap: pushing your first withdrawal into the next calendar year means you take two taxable distributions in one year, which can shove you into a higher bracket and inflate your Medicare premiums.
If you're still working and own a 401(k) at that job, you may be able to delay.
But that exception generally doesn't cover IRAs, and it doesn't cover old 401(k)s from former employers.
Lots of people assume they're exempt because they haven't retired.
RMDs exist to force tax revenue out of accounts that have been growing tax-deferred for decades.
Your brokerage and fund company benefit too, since they get to manage money that's moving out.
And the financial industry has built an entire product line around "RMD planning" services you may not need to pay for.
The IRS publishes life expectancy tables, and you divide your account balance by a factor based on your age.
Yet plenty of retirees pay hundreds or thousands of dollars a year for someone to run it.
You need to calculate RMDs separately for each IRA, even though you can take the total from just one account.
That flexibility doesn't extend to 401(k)s, where each plan stands alone.
Roth IRAs have no RMD during the owner's lifetime, which is a genuine reason to consider Roth conversions before age 73.
And if you inherited an IRA from someone who died in 2020 or later, different rules apply and they're stricter.
One more detail worth checking: the penalty used to be a flat 50%.
It was cut in 2023, and the IRS also created a way to request a waiver for honest mistakes.
Every January, look at your account balances as of December 31 of the prior year, run the calculation, and schedule the withdrawal early.
Don't wait until December and hope your custodian sends a form.
Many do the math for you automatically, but not all, and nobody is going to call to remind you.
It's that a retirement system built on individual accounts quietly outsources a mandatory government calculation to people in their seventies, then fines them when they get it wrong.
The penalty was trimmed, which is welcome, but the underlying design still puts the burden in the wrong place.
Final Thoughts
If your plan administrator offers to automate this, let them.