If you turned 73 this year and have a traditional IRA or 401(k) sitting untouched, the IRS expects a slice of it — whether you need the cash or not.
That slice is called a required minimum distribution, and skipping it can trigger one of the harshest penalties in the tax code: 25% of whatever you should have withdrawn, dropping to 10% only if you fix the mistake fast.
The rule applies to pre-tax retirement accounts — traditional IRAs, most 401(k)s, 403(b)s, and the like.
Roth IRAs are exempt during your lifetime, which is one reason they've become the go-to account for people who want to leave money to heirs.
If your entire nest egg sits in Roth accounts, you can ignore this whole article.
For everyone else, the math is straightforward but unforgiving.
The IRS divides your account balance as of December 31 of the prior year by a life expectancy factor from its Uniform Lifetime Table.
At 73, that factor is about 26.5, so a $500,000 balance means withdrawing roughly $18,900 for the year.
At 80, the factor drops to around 20.2, pushing the required amount higher even if the balance stays flat.
The deadline is December 31 for every year except your first.
For that initial withdrawal, you get a one-time grace period until April 1 of the following year — but take it and you'll owe two distributions in the same calendar year, which can shove you into a higher tax bracket and increase what you pay for Medicare Part B and Part D.
Most financial planners suggest just taking the first one on time.
Where this really bites is for retirees who don't need the money.
Maybe you're still working, or you're living on Social Security and a pension.
The withdrawal is taxable as ordinary income, and it can also affect how much of your Social Security benefits get taxed.
There's no partial exemption for "I didn't want it." A few escape hatches exist.
If you're still employed at the company sponsoring your 401(k) and you don't own more than 5% of the business, you can generally delay distributions from that plan until you retire.
And if you have multiple IRAs, you can take the total required amount from any one of them — but 401(k)s each have to be satisfied separately.
The penalty waiver is worth knowing about.
If you miss a distribution, file Form 5329 and explain the reason, the IRS often reduces the 25% hit to 10%, and sometimes waives it entirely for reasonable errors.
Banks and brokerages frequently send reminders, so check your statements rather than assuming nothing is due.
One more thing: qualified charitable distributions.
Once you hit 70½, you can send up to $105,000 per year directly from an IRA to a qualified charity.
It counts toward your RMD and stays out of your taxable income entirely.
For retirees who give anyway, it's one of the few genuine two-for-ones left in the tax code.
Our take: this is one of those rules that punishes inattention more than anything else.
Final Thoughts
Set a calendar reminder, confirm your account balance each January, and if the numbers feel tight, talk to a tax professional before December sneaks up.