If you turned 73 last year, the IRS has a birthday present waiting: your first required minimum distribution.
Miss it, and the penalty is 25% of the amount you should have withdrawn — potentially thousands of dollars gone for a paperwork slip.
Once you hit 73, traditional IRAs, 401(k)s, and most workplace retirement plans force you to start pulling money out whether you need it or not.
The rule exists because these accounts were funded with pre-tax dollars, and the government eventually wants its cut.
Your first deadline is April 1 of the year after you turn 73 — and that's where people get burned.
Take one wrong turn here and you owe taxes on two distributions in a single year.
If you delay your first withdrawal to that April 1 deadline, you still have to take your second one by December 31 of that same year.
Two taxable withdrawals stacked into one tax return can push you into a higher bracket, bump your Medicare premiums, and even increase how much of your Social Security gets taxed.
Brokerages don't always calculate your RMD correctly — especially if you hold multiple IRAs or moved accounts during the year.
You're responsible for the number, not them.
Fidelity, Vanguard, and Schwab will give you estimates, but the IRS says the taxpayer owns the mistake.
Plenty of retirees learned this the hard way during the 2020 CARES Act waiver, when confusion over suspended RMDs triggered penalty notices for people who withdrew anyway.
Congress cut it to 25% in 2023, and drops to 10% if you catch and correct the mistake quickly.
That's a real improvement — but it's still money you didn't have to lose.
The fix is boring: use the IRS Uniform Lifetime Table, confirm your December 31 prior-year balance, and withdraw before year-end, not in April.
One more wrinkle that doesn't get enough airtime: the Roth IRA loophole.
RMDs don't apply to Roth IRAs during the owner's lifetime.
If you're sitting on a traditional IRA and a Roth, and you're charitably inclined, qualified charitable distributions can satisfy your RMD and keep the money out of taxable income.
Financial advisors push this constantly, partly because it's genuinely useful — and partly because it keeps you on their payroll.
Now here's the part that should make you skeptical.
The financial industry has built an entire product category around RMD anxiety: annuities, "RMD calculators," managed withdrawal programs, and seminars at chain restaurants.
Many of these solutions cost more than the tax bill they're supposed to reduce.
A straightforward index fund and a calendar reminder will cover most people.
If someone's trying to sell you a complex product specifically because of RMDs, ask what they earn from it.
The bottom line: this is a deadline problem, not a strategy problem.
Know your number, take it by December 31, and don't let anyone upsell you on fear.
Final Thoughts
The IRS penalty is bad, but a 2% annual fee on your entire retirement nest egg is worse — and it never goes away.