If you turned 73 this year, the IRS has a message that most people don't hear until it's too late: you have to start pulling money out of your retirement accounts, whether you need it or not.
It's called a required minimum distribution, and missing it can trigger one of the harshest penalties in the tax code.
The rules are simple on paper, messy in practice.
Once you hit your required beginning age—73 for most people now, rising to 75 in 2033—you must withdraw a minimum amount each year from traditional IRAs, 401(k)s, and similar tax-deferred accounts.
The exact figure depends on your account balance and a life expectancy factor the IRS publishes.
You don't get to skip it because you're still working or because the market is down.
Skip a distribution or take too little, and the IRS charges a 25% excise tax on the amount you should have withdrawn.
That penalty drops to 10% if you fix the mistake quickly.
On a $40,000 missed withdrawal, that's thousands of dollars gone for what often amounts to an administrative oversight—not a scheme to dodge taxes.
The people who benefit most from this system are the ones who don't need the money right away.
Brokers and fund companies generally don't mind managing a larger balance.
The government, meanwhile, spent decades letting these accounts grow tax-deferred on the promise that it would eventually collect.
The RMD is that collection moment arriving.
Whether that's fair is a debate; whether it's enforced is not.
Your first RMD is due by April 1 of the year after you turn 73—but if you delay it, you'll have to take two distributions in the same calendar year.
That can shove you into a higher tax bracket, inflate your Medicare premiums through income-related surcharges, and make more of your Social Security taxable.
A single deadline decision can ripple across your entire financial picture.
Then there's the account-by-account confusion.
IRAs are aggregated—you can take the total RMD from one IRA and satisfy all of them.
Each plan generally requires its own distribution, and if you've left jobs with money scattered across old accounts, it's easy to lose track.
Roth IRAs don't require distributions during the owner's lifetime, but Roth 401(k)s do, which surprises people who assumed all Roth accounts were exempt.
The quiet winners in this mess are the firms that charge fees on balances and the tax preparers who clean up the errors.
The losers are ordinary retirees who assume the institution holding their money will warn them in time.
Many send a generic notice buried in a year-end statement.
Check your birth year against the current rules, since the age threshold has shifted and may shift again.
Ask each account custodian whether they automatically calculate and withhold your RMD, and get the answer in writing.
If you've inherited an IRA, the rules are stricter and the deadlines shorter, so treat that as its own separate problem.
And if you're charitably inclined, a qualified charitable distribution can satisfy part or all of your RMD while keeping the money out of your taxable income—one of the few genuinely useful loopholes left.
Our take: the RMD isn't a scandal, but it's a trap built on autopilot and fine print.
The system counts on you forgetting, and the penalty structure proves it.
Final Thoughts
Set a calendar reminder, confirm your numbers with a professional, and don't let a paperwork deadline cost you more than the withdrawal itself.