If you turned 73 this year, the IRS has a message you probably won't love: it's time to start pulling money out of your retirement accounts, whether you need it or not.
It's called a required minimum distribution, or RMD, and it applies to most traditional 401(k)s and IRAs.
Miss the deadline and the penalty is steep.
The IRS charges 25% of the amount you should have withdrawn, though that drops to 10% if you fix it quickly.
On a $20,000 missed withdrawal, that's a $5,000 mistake for simply forgetting a form.
The rule exists because traditional retirement accounts were never taxed on the way in.
Uncle Sam let you deduct contributions for decades, and the RMD is how he finally gets his cut.
Roth IRAs don't have this problem during your lifetime, which is one reason they've become so popular.
Your first RMD is due by April 1 of the year after you turn 73, not by December 31.
That grace period sounds generous, but it can backfire.
If you delay your first RMD into early 2025, you still owe your second one by December 31, 2025.
Two taxable withdrawals landing in the same calendar year can push you into a higher bracket, raise your Medicare premiums two years later, and even increase the taxable portion of your Social Security.
The amount you must withdraw isn't a flat percentage.
It's based on your account balance at the end of the prior year divided by a life expectancy factor the IRS publishes.
At 73, that factor is about 26.5, which works out to roughly 3.8%.
By your mid-80s, it climbs past 6%, and it keeps rising as you age.
If you have multiple IRAs, you can total the RMDs and take the money from whichever accounts you like.
Each workplace plan must pay out its own RMD separately, so retirees with old 401(k)s scattered across former employers need to track each one.
A few practical moves can soften the blow.
Consider a qualified charitable distribution, which lets you send up to $105,000 per year from an IRA directly to charity and counts toward your RMD.
If you don't need the cash, you can also reinvest it in a regular brokerage account, where it can grow without RMD rules.
Most large brokerages let you set up recurring distributions, which is far safer than remembering a deadline every year while juggling doctor visits and family birthdays.
If you're still working past 73, you may be able to delay RMDs from your current employer's 401(k), but not from an IRA.
The bottom line: this is one deadline the IRS doesn't forgive easily, and the paperwork lands on you, not your brokerage.
Set a calendar reminder, check your account balance each December, and consider a one-time conversation with a tax professional.
Final Thoughts
A little planning now beats handing over thousands later.