If you turned 73 this year, the IRS has a message that lands harder than any grocery receipt: start withdrawing from your retirement accounts, whether you need the money or not.
These forced withdrawals are called Required Minimum Distributions, or RMDs, and they apply to traditional IRAs, 401(k)s, and most other tax-deferred retirement plans.
Here's the part that catches people off guard.
An RMD isn't a suggestion or a withdrawal you can skip in a tight month.
The IRS calculates a minimum amount based on your account balance and life expectancy, and if you don't take it, the penalty is 25% of the amount you should have withdrawn.
That drops to 10% if you fix it quickly, but it's still money gone for no reason.
You get a one-time grace period for your very first RMD, which can be delayed until April 1 of the following year.
Take that option and you'll stack two taxable withdrawals into a single tax year, which can push you into a higher bracket and raise the tax bill on your Social Security benefits.
Most financial planners suggest taking the first one on schedule to avoid that pileup.
Because markets have been volatile and inflation has chewed into everyone's budget.
When account balances drop, your RMD is calculated on a smaller number, so the dollar amount shrinks.
The catch is that many retirees still need that money for rent, groceries, and credit card bills that got more expensive over the past few years.
A smaller forced withdrawal doesn't lower your expenses.
Traditional retirement accounts were funded with pre-tax dollars, so every RMD counts as ordinary income.
That can increase your Medicare Part B and Part D premiums through income-related surcharges, and it can make more of your Social Security taxable.
Retirees who saved diligently for decades sometimes find themselves handing a bigger share to the government than they expected.
Roth IRAs don't have RMDs during the owner's lifetime, which is one reason they've become a popular tool for people planning ahead.
If you're still working and contributing, converting some traditional money to Roth in lower-income years can reduce future forced withdrawals.
Just remember that a conversion is itself a taxable event, so it works best when you can pay the tax from outside the account.
If you're already taking RMDs, a few practical moves can soften the blow.
Ask your brokerage about withholding taxes directly from the distribution so you're not scrambling at filing time.
Consider a qualified charitable distribution, which lets you send up to $105,000 per year from an IRA to charity and counts toward your RMD without adding to your taxable income.
And if you have multiple IRAs, you can take the total from one account, though 401(k)s generally have to be handled separately.
The bottom line is that RMDs are not optional and the rules reward planning, not procrastination.
Check your account balance early in the year, confirm your calculated amount with your plan administrator, and decide whether you need the cash or want to reinvest it in a taxable account.
Waiting until December gives you almost no room to adjust.
Our take: forced withdrawals are one of the few retirement rules you can't negotiate, so treat them like a bill that shows up every year.
Build the tax cost into your budget before the statement arrives, and you'll keep more of what you saved.
Final Thoughts
Ignore it, and the penalty plus the tax bill will quietly take a bite out of the retirement you worked decades to build.