If you turned 73 this year, the IRS has a message for you: it wants its cut of your retirement savings, whether you need the cash or not.
It's called a required minimum distribution, or RMD, and it's one of the most misunderstood rules in personal finance.
Once you hit a certain age, the government forces you to start withdrawing money from tax-deferred accounts like traditional IRAs and 401(k)s.
You can't just let it sit and grow forever—you already got the tax break going in, and now Uncle Sam wants his bite going out.
The starting age is now 73, pushed up from 72 thanks to a 2022 law change.
If you're still working and contributing to a 401(k) at your current job, you may be able to delay your first withdrawal from that specific account—but not from an IRA.
The penalty for skipping an RMD is brutal: 25% of the amount you should have taken.
If you catch the mistake and fix it quickly, that drops to 10%.
It depends on your account balance at the end of the prior year and a life expectancy factor from an IRS table.
At 73, the divisor is about 26.5, which works out to roughly 3.8% of your balance.
The classic blunder is forgetting that RMDs apply per account, not per person.
If you have three IRAs, you can take the total from any one of them.
But 401(k)s are stricter—each plan generally requires its own separate withdrawal.
An RMD lands in your income for the year, which can bump you into a higher bracket, increase what you pay for Medicare premiums, and even make more of your Social Security taxable.
Retirees who also earn from part-time work feel this pinch the hardest.
A few practical moves can soften the blow.
Consider a qualified charitable distribution—if you're 70½ or older, you can send up to $105,000 per year straight from your IRA to charity, and it counts toward your RMD without adding to your taxable income.
You can also do Roth conversions before RMDs kick in, shrinking the balance that future withdrawals are calculated on.
Or simply plan your cash flow so you're not forced to sell investments at a bad moment just to satisfy the IRS.
The deadline is December 31 for most years—you can't just pay it in April with your taxes.
Contact your custodian immediately and file Form 5329 to request a penalty waiver.
The IRS often grants relief for first-time slip-ups, but you have to ask.
The takeaway is simple: set a calendar reminder, check your account balances every fall, and don't let a paperwork oversight hand a quarter of your withdrawal to the government.
Final Thoughts
A few minutes of planning now can save you thousands later.