If you turned 73 this year and have money sitting in a traditional IRA or 401(k), the IRS has a message for you: it wants its cut.
Required Minimum Distributions, or RMDs, force retirees to pull a set amount out of tax-deferred accounts every year once they hit a certain age.
Miss the deadline, and the penalty is one of the steepest in the tax code — 25% of whatever you should have withdrawn, dropping to 10% if you fix it fast.
Here's the part that catches people off guard.
The government makes you take it anyway, and then taxes it as ordinary income.
For savers who spent decades building a nest egg precisely so they wouldn't have to touch it, that's a frustrating twist.
The IRS divides your account balance by a life expectancy factor it publishes each year.
At 73, that factor is about 26.5, so a $500,000 IRA would require a withdrawal of roughly $18,900.
By age 80, the factor drops to around 20.2, pushing the required amount higher even if your balance stays flat.
That withdrawal can ripple through your finances in ways that have nothing to do with spending.
A larger RMD can push you into a higher tax bracket, make more of your Social Security taxable, and raise your Medicare Part B and Part D premiums through income-related surcharges.
In other words, a forced withdrawal you didn't even spend can still cost you real money elsewhere.
Your first RMD is due by April 1 of the year after you turn 73 — but if you delay it to that April, you'll owe two distributions in the same calendar year, which can spike your taxable income.
Most financial planners suggest taking the first one in the year you turn 73 to avoid that double hit.
Every year after that, the deadline is December 31, no extensions.
There are a few workarounds worth knowing.
If you're still working and your 401(k) is with your current employer, you may be able to skip RMDs on that plan until you actually retire.
Roth IRAs have no RMDs during the owner's lifetime, which is a big reason they've become a favorite tool for estate planning.
And a qualified charitable distribution lets you send up to $105,000 per year directly from an IRA to charity, satisfying your RMD without adding a dollar to your taxable income.
If you've already taken an RMD this year and don't need the cash, you can't put it back into the same account.
But you can reinvest it in a regular taxable brokerage account, where it can keep growing with no withdrawal requirements.
Some retirees also use the money to pay estimated taxes or fund a Roth conversion, turning a forced distribution into a longer-term tax play.
The bottom line: RMDs aren't optional, and ignoring the paperwork gets expensive fast.
If you're approaching 73, check with your plan administrator or a tax professional before December rolls around.
Automating the withdrawal is one of the simplest ways to avoid a penalty that can run into five figures.
Our take: RMDs are a reminder that tax-deferred doesn't mean tax-free — it means tax-later, and later eventually arrives.
Final Thoughts
A little planning in your late 60s can save you thousands once the IRS starts expecting its share.