If you turned 73 last year, the IRS expects a slice of your retirement account whether you need the cash or not.
Required minimum distributions, or RMDs, force savers to pull money out of traditional IRAs and 401(k) plans once they hit a certain age, and the penalty for skipping one is one of the steepest in the tax code.
The rule now kicks in at 73 for most people, rising to 75 in 2033.
Miss the deadline and the IRS can take 25% of the amount you should have withdrawn, dropping to 10% if you fix it quickly.
On a $30,000 missed distribution, that's up to $7,500 gone.
The timing is brutal for anyone who retired recently.
Pulling money from a beaten-down portfolio locks in losses, and the withdrawal itself can push you into a higher tax bracket or bump up what you pay for Medicare premiums two years later.
There's one workaround many retirees overlook.
If you're still working and don't own more than 5% of the company, your current employer's 401(k) can sit untouched.
That exception doesn't apply to IRAs, though, so a traditional IRA always follows the RMD rules.
Your first withdrawal deadline is April 1 of the year after you turn 73.
Every year after that, the money must come out by Dec. 31.
Double up in that first year and you'll stack two taxable distributions into one tax return, a mistake that catches plenty of people off guard.
Withdrawals are based on your account balance at the end of the prior year, divided by a life expectancy factor the IRS publishes.
Markets fell hard in 2022, which shrinks the base for anyone who waited.
A smaller balance means a smaller required amount, but it also means less money working for you when stocks recover.
The cheapest move is often called an in-kind transfer.
You move shares from your IRA to a regular taxable brokerage account instead of selling first.
The tax bill is the same, but your money stays invested and keeps compounding.
Another option: a qualified charitable distribution.
If you're 70½ or older, you can send up to $105,000 per year straight from your IRA to a charity.
That money counts toward your RMD, never touches your taxable income, and can lower the Medicare surcharge that wealthier retirees get hit with.
For people who don't need the cash, reinvesting it in a taxable account is the standard play, but watch what it does to your overall tax picture.
Capital gains, Social Security taxation, and Medicare brackets all interact in ways that surprise people filing for the first time after retirement.
The December deadline arrives fast, custodians get swamped, and a missed form can cost you thousands.
The bottom line: RMDs aren't optional, but how you handle them is.
Final Thoughts
A little planning before year-end can keep more of your nest egg working and less of it going to the IRS.