Millions of Americans are about to hand a bigger slice of their nest egg to the IRS, and many won't see it coming until the paperwork lands.
Required minimum distributions, or RMDs, are the mandatory withdrawals the government forces you to take from tax-deferred retirement accounts like traditional IRAs and 401(k)s once you hit a certain age.
The rule exists because Uncle Sam let that money grow tax-free for decades — and now he wants his cut.
The age trigger has shifted in recent years.
Under current law, most retirees must start taking RMDs at 73, up from the old 72 threshold.
If you were born in 1960 or later, the starting line moves again to 75.
Miss that first deadline and the penalty is brutal: a 25% excise tax on the amount you should have withdrawn, though it can drop to 10% if you fix the mistake quickly.
Here's where it gets expensive for households.
The IRS calculates your RMD by dividing your account balance at the end of the prior year by a life expectancy factor from an official table.
As you age, that factor shrinks, which means the percentage you're forced to pull out climbs — even if you don't need the cash.
A 75-year-old might be required to withdraw roughly 4% of their balance, while an 85-year-old could be looking at more than 6%.
That forced income can trigger a chain reaction.
Withdrawals count as ordinary income, which can push you into a higher tax bracket, increase the taxable portion of your Social Security benefits, and raise your Medicare Part B and Part D premiums through income-related monthly adjustment amounts.
In other words, a withdrawal you didn't want can quietly raise costs across your entire financial life.
The stakes are real for everyday retirees.
Fidelity data has shown that a large share of IRA owners either take the wrong amount or skip the withdrawal entirely in their first RMD year — a costly administrative stumble.
Meanwhile, the Secure 2.0 law added a wrinkle: starting in 2023, the penalty for missing an RMD fell from 50% to 25%, and to 10% if corrected within a two-year window.
That's a break, but it's not a free pass.
If you're still working and own a 401(k) at that job, you may qualify for a delay until you actually retire — but that exception doesn't apply to traditional IRAs.
Roth IRAs have no RMDs during the owner's lifetime, which is one reason they've become a favorite tool for estate planning.
There are legitimate ways to soften the blow.
Qualified charitable distributions let you send up to $105,000 per year directly from an IRA to charity, satisfying your RMD without adding to taxable income.
Converting part of a traditional IRA to a Roth in lower-income years can shrink future forced withdrawals.
And for those with a gap between retirement and age 73, "filling up" lower tax brackets with partial conversions is a strategy advisors lean on heavily.
The clock matters more than most people think.
The first RMD must be taken by April 1 of the year after you turn 73 — but every year after that, the deadline snaps back to December 31.
Miss it, and you're writing a check to the government for money you never got to spend.
Our take: RMDs aren't a punishment so much as a bill that was always coming due.
The retirees who win this game are the ones who plan a decade ahead, not the ones who panic in April.
Final Thoughts
Treat the rule as a scheduling problem, not a surprise, and you keep more of what you saved.