If you turned 73 this year, the IRS has a number for you, and it is not a friendly one.
It is your required minimum distribution, or RMD, the slice of your traditional IRA or 401(k) that Uncle Sam insists you withdraw whether you need the money or not.
Miss it, and the penalty is 25% of the amount you should have taken, dropping to 10% if you fix the mistake quickly.
That is one of the steepest fines in the tax code, and it catches thousands of retirees every year who simply never got the memo.
You divide your retirement account balance at the end of the previous year by a life expectancy factor the IRS publishes.
At 73, that factor is about 26.5, so a $500,000 balance means a withdrawal of roughly $18,900.
The older you get, the smaller the factor, the bigger the required bite.
The first-year rule trips people up most.
You can delay your very first RMD until April 1 of the following year, but that means taking two distributions in the same tax year.
For a retiree on Medicare, that doubled income can trigger higher Part B and Part D premiums two years later through the income-related monthly adjustment amount.
Every dollar pulled from a traditional account counts as ordinary income, taxed at your marginal rate.
That can push you into a higher bracket, shrink your Social Security benefits, and raise what you owe on investment income.
Retirees who also hold a Roth IRA have an advantage here, because Roth accounts are not subject to RMDs during the owner's lifetime.
If you are still working and do not own more than 5% of the company, you can usually skip RMDs on your current employer's 401(k) until you actually retire.
Qualified charitable distributions offer another path.
Once you are 70½ or older, you can send up to $105,000 per year directly from an IRA to a qualified charity.
That money satisfies your RMD and never shows up as taxable income, which can protect both your tax bracket and your Medicare premiums.
RMDs do not adjust for a rough market year.
If stocks fell 20% but your balance on December 31 was still high, you owe the distribution on that number anyway.
Sell into a downturn and you lock in losses just to satisfy the IRS.
Automate the withdrawal if your custodian allows it, and check the amount in January, not December.
Brokers will not chase you down, and the penalty letter arrives long after the deadline has passed.
The bottom line: an RMD is not a suggestion, it is a tax bill with a deadline attached.
Treat it like a mortgage payment, not a windfall, and you will keep more of what you spent decades building.
Final Thoughts
Retirees who plan withdrawals years ahead almost always come out further ahead than those who scramble in December.