If you turned 73 last year, the IRS has a message: start withdrawing from your retirement accounts, or pay a penalty.
It's called a required minimum distribution, or RMD, and it's one of the more jarring surprises in personal finance.
Traditional IRAs and most 401(k)s give you a tax break going in.
The tradeoff is that the government eventually forces you to take money out and pay taxes on it.
The current starting age is 73, rising to 75 in 2033.
Miss a withdrawal, and the penalty is 25% of the amount you should have taken — dropped to 10% if you fix it quickly.
That penalty number is what rattles people.
A retiree who was supposed to pull $20,000 and forgot could be looking at a $5,000 hit. **The math is not in your favor** RMDs are calculated by dividing your account balance at the end of the prior year by a life expectancy factor from IRS tables.
The older you get, the larger the percentage you're forced to withdraw.
The catch: markets don't care about your tax schedule.
If your portfolio dropped 20% but your RMD is based on the prior year's peak balance, you're selling into a down market and still writing a check to the IRS.
That's a real risk for anyone retiring into a bad stretch. **Who actually benefits** The RMD rule exists because the government wants its tax revenue eventually.
Deferring taxes for 40 years is generous, but not indefinite.
Every dollar sitting in a traditional IRA is a future IOU to the IRS.
The winners are people who planned around this decades in advance — Roth conversions during low-income years, charitable qualified distributions after 70½, and strategic withdrawals before RMDs kick in.
The losers are people who ignored it until the letter arrived.
There's also a growing pile of confusion around inherited IRAs.
The SECURE Act changed the rules so many non-spouse heirs must empty the account within 10 years, and the IRS has been issuing conflicting guidance about whether annual distributions are required during that window.
If you inherited an IRA after 2019, this is worth a call to a tax professional, not a Google search. **What to do about it now** First, confirm your actual start year.
If you're turning 73 this year, you generally must take your first RMD by April 1 of next year — but then you'll owe two RMDs in the same tax year, which can push you into a higher bracket.
Sometimes it's smarter to take the first one in the year you turn 73.
Second, check whether your brokerage auto-calculates RMDs.
Many do, but they're not legally required to, and they can get it wrong with multiple accounts or 401(k)s from old employers.
Third, remember that Roth IRAs have no RMDs during the owner's lifetime.
That's one reason conversions look more attractive as you approach 73. **The bottom line** RMDs aren't a scam, but they're also not a friendly reminder — they're a tax collection mechanism with teeth.
The retirees who handle them best aren't the ones with the biggest accounts; they're the ones who built a withdrawal plan years before the deadline arrived.
Final Thoughts
If you're anywhere near 73, treat this as a planning project, not a paperwork chore.