If you turned 73 this year, the IRS has a birthday present waiting: your first Required Minimum Distribution.
Miss it, and the penalty is one of the steepest in the tax code — 25% of the amount you should have withdrawn, dropping to 10% only if you fix it fast.
Here's the part that trips up even seasoned savers.
RMDs apply to traditional IRAs, 401(k)s, and most workplace plans, but not to Roth IRAs while you're alive.
If you own multiple traditional IRAs, you can't just add up the balances and pull one check.
Each account gets its own calculation, though you can take the total from any single IRA or combination — a rule that confuses people every single year.
The math itself is simple: divide your Dec. 31 balance by a life expectancy factor the IRS publishes.
A 73-year-old typically uses a factor around 26.5, meaning roughly 3.8% of the account.
By 85, that factor drops near 16, pushing the required percentage above 6%.
The older you get, the more the government wants out.
Your first RMD can be delayed until April 1 of the following year.
Sounds generous — until you realize that stacks two taxable withdrawals into one calendar year, potentially shoving you into a higher bracket and increasing what you pay for Medicare Part B and Part D two years later.
The Social Security angle catches retirees off guard too.
An RMD counts as ordinary income, which can make more of your Social Security benefits taxable.
That's why some advisors suggest taking smaller voluntary withdrawals before 73, filling up lower tax brackets while you still have room.
For 2024, the penalty for a missed RMD dropped from 50% to 25% under SECURE 2.0.
Correct the mistake within the two-year window and file the right form, and it can fall to 10%.
Still painful, but far less catastrophic than the old rules.
Inherited IRAs follow their own set of rules, and they changed again recently.
Most non-spouse beneficiaries now must empty the account within 10 years, with annual distributions required in some cases.
If you inherited an IRA before 2020, different rules apply.
This is exactly the kind of detail that warrants a call to a tax professional rather than a guess.
One more trap: RMDs cannot be rolled over or converted to a Roth.
If you withdraw the money and try to move it, the IRS treats it as a distribution — fully taxable — and the rollover itself may be invalid.
If you don't need the money, you can still redirect up to $105,000 per year (2024 limit) straight to charity through a Qualified Charitable Distribution.
It counts toward your RMD, keeps the amount out of your taxable income, and can satisfy charitable giving you'd do anyway. **Our take:** RMDs are less a tax problem than a planning problem.
The people who get hurt are usually the ones who ignore the calendar, not the ones who owe a bit of tax.
Final Thoughts
Automate the withdrawal, check the math once a year, and you'll never hand the IRS a 25% tip for doing nothing.