If you turned 73 this year, the IRS has a message you probably won't love: it's time to start withdrawing from your retirement accounts, whether you need the cash or not.
These withdrawals are called Required Minimum Distributions, or RMDs, and they apply to traditional IRAs, 401(k)s, and most other tax-deferred retirement plans.
Miss one, and the penalty is steep — 25% of the amount you should have withdrawn, dropping to 10% if you fix it quickly.
That's real money leaving your account for no reason other than a missed deadline.
The math behind the rule is simple enough.
The IRS divides your account balance by a life expectancy factor that shrinks as you age, which means your required withdrawal percentage grows every year.
At 73, you're typically pulling out somewhere near 3.8% of your balance.
By your mid-80s, that figure can climb past 6%, and by your 90s it can exceed 10%.
Here's the part that catches people off guard: the deadline isn't tax day.
Your first RMD is due by April 1 of the year after you turn 73, but every RMD after that must be taken by December 31.
Wait until the following spring for your first one, and you'll end up taking two taxable distributions in the same calendar year — which can push you into a higher bracket and trigger higher Medicare premiums two years later.
The Medicare surcharge is the sneaky one.
Higher income from a large RMD can bump your Part B and Part D premiums through the Income-Related Monthly Adjustment Amount, and that increase is based on your tax return from two years prior.
A single oversized withdrawal can raise your healthcare costs for an entire year.
There's also the tax trap for early retirees.
If you retire at 62 and live off savings until RMDs kick in at 73, those forced withdrawals arrive on top of Social Security — often at the worst possible time, when you have the least control over your bracket.
Converting some traditional IRA money to a Roth during low-income years reduces future RMDs, since Roth IRAs have no distribution requirement during the owner's lifetime.
Qualified charitable distributions let those 70½ and older send up to $105,000 per year directly to charity, and that amount counts toward your RMD while staying out of taxable income.
Spouses with a significant age gap have another option: the younger spouse can sometimes delay RMDs on their own IRA until they reach 73, and inheriting an IRA comes with its own separate rules that are worth reviewing with a tax professional.
One more thing worth checking — the penalty for a missed RMD used to be a brutal 50%.
It was cut to 25% in recent years, and if you catch the error and file the right paperwork promptly, it can drop to 10%.
Still expensive, but not the catastrophe it once was.
The takeaway: an RMD isn't optional, but how much you pay in tax on it is often within your control.
A little planning in your 60s can save thousands in your 70s.
None of this is a reason to dread your retirement accounts — it's a reason to look at them before the IRS does.
Final Thoughts
The people who get hurt by RMDs are usually the ones who never ran the numbers.