Millions of Americans over 73 are about to get a smaller-than-expected deposit from their retirement accounts, and many won't understand why until they call their broker.
It's called a Required Minimum Distribution, or RMD.
Once you hit a certain age, the IRS doesn't let you keep money parked in a traditional IRA or 401(k) indefinitely.
You have to start withdrawing a slice each year, and that slice gets taxed as ordinary income.
The rules changed under the SECURE 2.0 Act.
The starting age is now 73 for most people, and it climbs to 75 in 2033.
If you turned 72 before the end of 2022, the old rules may still apply to you.
It's calculated by dividing your account balance by a life expectancy factor the IRS publishes each year.
At 73, that divisor is about 26.5, which works out to roughly 3.8 percent of your balance.
By 80, the divisor drops to around 20.2, pushing the required share past 5 percent.
That math matters more than ever because balances have grown.
A 73-year-old with a $500,000 IRA would need to pull about $18,900 this year whether they need the cash or not.
At a 22 percent marginal rate, that's over $4,000 heading to the IRS.
The deadline is another source of costly mistakes.
You generally must take your first RMD by April 1 of the year after you turn 73.
Miss it, and the penalty is 25 percent of the amount you should have withdrawn, dropping to 10 percent if you fix it quickly.
Every year after that, the deadline is December 31.
Some retirees try to dodge the tax hit by converting a chunk of their traditional IRA to a Roth.
That works, but the conversion itself is taxable in the year you do it, so the timing needs care.
Others use a qualified charitable distribution, sending up to $105,000 per year straight from an IRA to charity.
That money counts toward your RMD and never touches your taxable income.
If you're still working and own a 401(k) at that job, you may be able to delay RMDs from that specific plan until you retire.
That exception does not apply to IRAs you opened on your own.
The most expensive mistake is simpler than any of this: ignoring the account.
RMDs apply to each IRA separately, but you can usually take the total from one or a few accounts.
Just don't skip the withdrawal entirely because the money is spread across three custodians.
Set a calendar reminder for early December.
Check your balance, run the division, and confirm the custodian has your correct birth date on file.
A five-minute review beats a five-figure penalty.
The retirement industry has spent decades selling the tax break on the way in.
Final Thoughts
RMDs are the bill arriving on the way out, and the rules reward people who plan for them years ahead rather than the week before New Year's Eve.