If you turned 73 last year and have money sitting in a traditional IRA or workplace 401(k), the IRS is not asking whether you feel ready to start withdrawals.
It wants its cut, on a schedule, whether you need the cash or not.
That schedule is the required minimum distribution, or RMD.
Miss one, and the penalty is 25% of the amount you should have withdrawn.
Correct it quickly and that can drop to 10%, but the paperwork headache is real.
This is one of the few retirement rules with a hard, automatic price for ignoring it.
The year you hit 73 — or 75, if you were born in 1960 or later, under a change passed in 2023 — you must pull a minimum amount from tax-deferred accounts.
The math is simple: your account balance at the end of the prior year, divided by a life expectancy factor the IRS publishes.
At 73, that factor is about 26.5, meaning you withdraw roughly 3.8% of the balance.
This rule applies to traditional IRAs, SEP IRAs, SIMPLE IRAs and most 401(k)s.
It does not apply to Roth IRAs, which is one reason they became the darlings of retirement planning.
But watch out — Roth 401(k)s now skip RMDs too, a change many workers still don't know about.
The trap most people miss: the first-year delay.
For your very first RMD, you're allowed to wait until April 1 of the following year.
Wait, and you'll owe two withdrawals in one tax year, potentially shoving you into a higher bracket and raising your Medicare premium.
The RMD isn't really a retirement rule — it's a tax-collection deadline dressed up as a planning tool.
The government let you defer taxes for decades.
Now it wants the deferred money back, and it sets the pace.
Financial advisors have made an entire cottage industry out of this. "RMD planning" seminars, charitable giving strategies, Roth conversion pitches before the deadline.
Some of it is a sales funnel for products with fees.
Ask who benefits before you sign anything.
If you're still working at 73 and own less than 5% of the company, a current employer's 401(k) can sometimes be excluded from RMDs.
That exception is narrower than it sounds and doesn't cover IRAs at all.
But you can decide which accounts to draw from first, whether to convert some money to Roth during low-income years before RMDs start, and how much to give to charity through qualified charitable distributions — up to $105,000 in 2024, which counts toward your RMD and stays out of taxable income.
Check your balance each December, run the number, and take the withdrawal.
The people who get hit hardest are usually the ones who assumed someone else was watching.
Our take: RMDs aren't a conspiracy, but they're also not the friendly "retirement income" framing the brochures use.
It's a tax bill on a timer, and the timer doesn't care about your plans.
Final Thoughts
Know your number before the IRS knows it for you.