Americans who spent decades dutifully stuffing money into 401(k)s and traditional IRAs are about to meet a less friendly phase of the relationship: the government wants its cut.
Required minimum distributions, or RMDs, force retirees to withdraw a set amount from most tax-deferred accounts each year once they hit a certain age.
Miss the deadline, and the penalty is brutal.
The age trigger has shifted in recent years, so plenty of savers are confused about when their first withdrawal is actually due.
Under current rules, most people must start taking RMDs at age 73.
Those born in 1960 or later face a start age of 75.
If you're already taking distributions, the math resets annually based on your account balance and a life expectancy factor from IRS tables.
The penalty for skipping an RMD is 25% of the amount you should have withdrawn, though it can drop to 10% if you fix the mistake quickly.
That's not a slap on the wrist — it's a direct hit to a nest egg that may already be feeling tight.
The withdrawal itself is taxable as ordinary income.
For retirees on fixed budgets, a forced distribution can push them into a higher bracket, inflate their Medicare Part B and Part D premiums through income-related surcharges, and even trigger taxes on Social Security benefits.
In other words, the RMD doesn't just cost you the tax on the withdrawal — it can ripple through your entire financial picture.
You generally must take your RMD by Dec. 31 each year.
Your very first one comes with a grace period: you can delay it until April 1 of the following year.
But take that option, and you'll be stacking two taxable distributions into a single tax year — a move that can spike your bill.
Not every account follows the same script.
Roth IRAs have no RMDs during the owner's lifetime, which is a big reason they've become a favorite tool for estate planning.
Roth 401(k)s no longer require them either, thanks to recent law changes.
But traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and most other workplace plans do.
If you're still working and participating in your employer's 401(k), you may be able to skip RMDs on that specific plan until you retire — unless you own more than 5% of the business.
If you don't need the cash, you don't have to spend it.
One popular strategy is a qualified charitable distribution, which lets you send up to $105,000 per year directly from an IRA to a qualified charity.
It counts toward your RMD and keeps the money out of your taxable income entirely.
Another option: take the distribution and reinvest it in a regular brokerage account.
You'll owe the tax, but you keep the money growing and gain more flexibility than a tax-deferred account offers.
Check your account balances early in the year, confirm your deadline, and consider automating the withdrawal so a busy fall doesn't turn into a costly January surprise.
The bottom line: RMDs are less a retiree benefit and more a tax collection deadline that rewards preparation and punishes procrastination.
If you're near the age threshold, a few hours with a tax professional this year could save you thousands next April.
Final Thoughts
Ignoring the rules won't make them disappear — it just makes them more expensive.