If you turned 73 this year, the IRS has a message for you: it's time to start withdrawing from your retirement accounts, whether you need the cash or not.
Those withdrawals are called Required Minimum Distributions, or RMDs.
They apply to traditional IRAs, 401(k)s, and most other tax-deferred retirement plans.
The rule exists because the government let that money grow untaxed for decades, and now it wants its cut.
Miss the deadline and the penalty stings.
The excise tax on a missed RMD is 25% of the amount you should have withdrawn, dropping to 10% if you fix it quickly.
On a $20,000 distribution, that's up to $5,000 gone for a simple oversight.
The first deadline catches many people off guard.
You must take your first RMD by April 1 of the year after you turn 73.
After that, every withdrawal is due by December 31.
Take that first one late in the following April and you'll owe two distributions in the same tax year, which can push you into a higher bracket.
The IRS divides your account balance by a life expectancy factor from its Uniform Lifetime Table.
At 73, that factor is about 26.5, so a $500,000 balance means roughly $18,900 comes out.
The percentage climbs as you age, reaching about 5% in your late 70s and more than 8% by your mid-80s.
An RMD can bump you into a higher marginal tax bracket, increase what you pay for Medicare Part B and Part D premiums through IRMAA surcharges, and even make more of your Social Security benefits taxable.
If you're still working and contributing to a 401(k) at that job, you may be able to skip RMDs on that specific plan until you retire.
That exception doesn't apply to IRAs or to old 401(k)s from former employers.
The qualified charitable distribution is another tool.
Once you're 70½, you can send up to $105,000 per year directly from an IRA to a qualified charity.
That money counts toward your RMD but never hits your taxable income, which can protect your Medicare premiums.
The catch: the check must go straight to the charity, not to you first.
Roth IRAs have no RMDs during the owner's lifetime, which is a big reason some savers convert traditional balances to Roth in lower-income years before 73.
New Roth 401(k)s also no longer require lifetime distributions starting in 2024.
If you've inherited an IRA, different rules apply.
Most non-spouse beneficiaries must empty the account within 10 years under the SECURE Act, and annual RMDs may apply along the way depending on the relationship and when the original owner died.
Set a calendar reminder for early December, not late December.
Brokerages get slammed, and a processing delay can turn a routine withdrawal into a penalty.
Automatic distribution plans through your custodian are the simplest safeguard. **Our take:** RMDs aren't a punishment, but they are a tax bill with a deadline attached.
Reviewing your withdrawal strategy a few years before 73 — especially Roth conversions and charitable giving — can save far more than most people realize.
Final Thoughts
Waiting until the IRS notice arrives is the expensive way to learn this rule.