Millions of Americans over 73 are about to get a reminder they didn't ask for: the IRS wants its cut of your retirement account, and it doesn't care what the market did last year.
It's called a Required Minimum Distribution, or RMD.
Once you hit a certain age, the government forces you to withdraw a minimum amount from traditional IRAs and 401(k)s each year — and then taxes it as ordinary income.
The rule exists because these accounts grew tax-deferred for decades.
Miss the deadline, and the penalty is steep: 25% of the amount you should have withdrawn, dropping to 10% if you fix it quickly.
Here's what changed and why it matters for your budget.
The SECURE 2.0 Act pushed the starting age to 73 for most people, and to 75 for those born in 1960 or later.
That's a rare gift — extra years of tax-deferred growth — but it also means larger balances and bigger forced withdrawals later.
Your RMD is calculated by dividing your account balance at the end of the prior year by a life expectancy factor from IRS tables.
As you age, that factor shrinks, so the percentage you must pull out climbs — from roughly 3.8% at 73 to over 5% by your early 80s.
If markets dropped, you may be forced to sell investments at a low point just to satisfy the IRS.
If you don't actually need the cash, the withdrawal still lands in your taxable income, potentially bumping you into a higher bracket or increasing what you pay for Medicare premiums.
Social Security recipients feel this most.
A larger RMD can make more of your benefits taxable, effectively shrinking your monthly check through the back door.
There's a silver lining for the charitable.
Qualified Charitable Distributions let you send up to $108,000 directly from an IRA to a charity, counting toward your RMD while staying out of your taxable income.
For retirees who give regularly, that's one of the few clean wins left in the tax code.
For everyone else, the strategy is timing.
Some advisors recommend taking RMDs late in the year, after dividends and capital gains distributions are known.
Others suggest "filling up" lower tax brackets with partial Roth conversions before RMDs begin, shrinking future forced withdrawals.
The deadline is December 31 for most accounts — you can't extend it.
The one exception is your very first RMD, which can be delayed to April 1 of the following year, but doing that means two taxable withdrawals in the same year.
If you have multiple IRAs, you can total the RMDs and take the money from whichever account you prefer.
But 401(k)s don't get that flexibility — each plan must pay out separately.
The bottom line for households: this isn't a rich-person problem.
Plenty of middle-class savers who scrimped into a 401(k) for 30 years now face four-figure forced withdrawals they never planned for.
Knowing your number before December — not after — is the difference between a smooth year and a costly surprise.
Our take: RMDs are the rare tax rule where doing nothing is the most expensive option.
Spend an hour with your account statements and the IRS tables, or pay someone who will.
Final Thoughts
The deadline doesn't negotiate, and the penalty for ignoring it is money you already earned.