If you turned 73 this year, the IRS has a message for you: it wants its cut of your retirement savings.
Required minimum distributions, or RMDs, force retirees to pull money out of traditional IRAs and 401(k)s whether they need the cash or not.
Miss the deadline, and the penalty stings.
The excise tax for skipping an RMD is 25% of the amount you should have withdrawn, dropping to 10% if you fix it quickly.
That is one of the harshest penalties in the tax code, and it applies even if you simply forgot.
The rules shifted under the SECURE 2.0 Act.
The starting age moved to 73 for people born from 1951 through 1959, and it rises to 75 for those born in 1960 or later.
If you hit 72 before 2023, the old rules still apply to you.
You can delay it until April 1 of the year after you turn 73.
But take that option and you will owe two distributions in the same calendar year, which can push you into a higher tax bracket and inflate your Medicare premiums two years later.
The amount you must withdraw is not a flat number.
It is your account balance on December 31 of the prior year divided by a life expectancy factor from IRS tables.
A 73-year-old uses roughly 26.5, meaning about 3.8% of the balance.
The percentage climbs each year, reaching about 5% in your early 80s.
Roth IRAs are exempt during the owner's lifetime, which is a major reason they have become a favorite estate-planning tool.
Roth 401(k)s are also no longer subject to RMDs thanks to recent law changes.
But if you inherited an IRA from someone who died in 2020 or later, you are likely stuck with a 10-year payout window and annual withdrawals in most cases.
Many brokerage firms auto-calculate RMDs, but the responsibility is yours, not theirs.
If you hold accounts at three different institutions, each one may only handle its own slice.
You can usually satisfy the total from one account, but only for IRAs, not for 401(k)s, which must be calculated separately.
It can raise your marginal rate, trigger the Social Security taxation formula, and bump your Part B and Part D premiums through income-related monthly adjustment amounts.
For a married couple both subject to RMDs, the combined withdrawal can be surprisingly large.
Qualified charitable distributions let you send up to $105,000 per person directly from an IRA to charity in 2024, and that money never hits your taxable income.
Roth conversions before RMDs begin can shrink future required amounts.
Withholding taxes directly from the distribution avoids a surprise bill in April.
The deadline is December 31 for every RMD after your first one.
Markets close, paperwork jams, and December is not the month to discover your advisor went on vacation.
Our take: RMDs are less a punishment than a forced tax bill that most retirees underestimate until it arrives.
Planning a few years ahead, especially in the gap between retirement and age 73, can turn a painful surprise into a manageable line item.
Final Thoughts
The people who win here are the ones who read the rules before the IRS reads their balance.