If you turned 73 this year, the IRS expects a withdrawal from your retirement accounts by December 31 — whether you need the money or not.
Miss that deadline, and the penalty is steep: 25% of the amount you should have taken, dropping to 10% only if you fix it within a specific correction window.
Required minimum distributions, or RMDs, apply to traditional IRAs, 401(k)s, and most workplace plans.
The rule exists because those accounts were funded with pre-tax dollars.
The math starts with your account balance on December 31 of the prior year, divided by a life expectancy factor from IRS tables.
A 73-year-old typically divides by about 26.5, meaning roughly 3.8% of the balance must come out.
By age 85, that divisor shrinks to around 16, pushing the required percentage past 6%.
The first-year deadline trips people up more than any other detail.
For your very first RMD, you can delay the withdrawal until April 1 of the following year.
But that grace period comes with a catch: you will still owe the second year's distribution by that same December 31.
Two taxable withdrawals landing in one calendar year can shove a retiree into a higher bracket and trigger higher Medicare premium surcharges two years later.
Roth IRAs never require withdrawals during the owner's lifetime, which is why they have become the preferred account for many savers.
Roth 401(k)s, however, do impose RMDs unless the balance is rolled into a Roth IRA.
That rollover is one of the simplest planning moves available, yet plenty of people never make it.
Penalty relief has gotten more forgiving in recent years, but the process is not automatic.
You generally file Form 5329 with the IRS to request a waiver, and you must show the miss was due to an error and that you are correcting it.
Waiting until the IRS sends a notice is the expensive way to learn this.
There is also the aggregation rule, which confuses even experienced retirees.
If you hold multiple traditional IRAs, you can total the required amounts and take the entire distribution from just one account.
But that flexibility does not extend to 401(k)s.
Each workplace plan must be satisfied separately, and you cannot pull from an IRA to cover a 401(k) shortfall.
For anyone still working past 73, a narrow exception may apply.
If your current employer's 401(k) plan allows it and you do not own more than 5% of the business, you can generally skip RMDs on that specific plan.
The exception does not cover IRAs or money left in a former employer's plan.
Qualified charitable distributions let you send up to $105,000 per year directly from an IRA to a qualified charity, and the amount counts toward your RMD.
Because the money never touches your hands, it stays out of your taxable income entirely — a meaningful difference from claiming a deduction.
Anyone with a large pre-tax balance should also look at the years before RMDs begin.
Converting portions to Roth in a low-income gap year shrinks future required withdrawals, and it can reduce the tax bill for heirs who inherit the account under the 10-year payout rule.
Our take: RMDs are less a tax problem than a calendar problem.
The investors who get hurt are rarely the ones with the biggest balances — they are the ones who treat December 31 like a suggestion.
Final Thoughts
Pick a date in early November, every year, and check the math before the holidays.