Retirement savers spend decades watching traditional IRAs and 401(k) accounts grow untaxed, but the government eventually sets a date when that arrangement ends. For most current retirees, the clock starts the year they turn 73, the age at which federal law requires them to begin drawing the money down and paying tax on it. Those withdrawals are mandatory whether or not the retiree needs the cash, and the penalty for ignoring them ranks among the harshest in the tax code.
Why the mandatory withdrawals begin at 73
The rule is called a required minimum distribution, or RMD, and it reaches traditional IRAs along with most workplace plans, including 401(k), 403(b), SEP and SIMPLE accounts. Roth IRAs are exempt while the original owner is alive, one reason many planners push clients toward Roth conversions before the deadlines arrive. The starting age has moved twice in recent years. The SECURE 2.0 Act lifted it from 72 to 73 for anyone reaching that age between 2023 and 2032, and it is scheduled to climb again to 75 in 2033, a staggered schedule that has left savers born in different years facing different deadlines.
A first withdrawal carries a quiet trap. The Internal Revenue Service allows the very first distribution to be postponed until April 1 of the year after a retiree turns 73, but delaying it forces two taxable withdrawals into the same calendar year, potentially inflating that year’s income and the taxes tied to it. Every RMD after the first must be taken by December 31. For a retiree still weighing whether to defer, the arithmetic of stacking two distributions often outweighs the appeal of waiting a few extra months.
Free retirement updates: Want plain-English help keeping more of your money in retirement? The free Retirement Shield newsletter covers the benefits, deadlines, and money mistakes that cost retirees, a couple times a week. Subscribe free.
The penalty for a missed or short withdrawal
The cost of forgetting is steep. When a retiree fails to take the full required amount, the shortfall is hit with an excise tax. SECURE 2.0 lowered that penalty from 50 percent to 25 percent of the sum that should have been withdrawn, and it can shrink to 10 percent when the mistake is corrected within a two-year window. To claim relief, a taxpayer files Form 5329 and, where the lapse stemmed from a reasonable error, can request a waiver. The agency has historically waived the tax when the retiree fixes the shortfall promptly and documents the cause. Even at the reduced rate, the penalty is punishing: a $20,000 distribution left untaken can cost $2,000 in tax on top of the ordinary income tax eventually owed on the money.
How the required amount is calculated
The size of each withdrawal is not left to the retiree. It is figured by dividing the account balance as of December 31 the prior year by a life-expectancy factor the agency publishes in its Uniform Lifetime Table. The percentage that must come out rises with age, which means the mandatory draw, and the tax attached to it, tends to grow later in retirement rather than earlier. Because the distributions count as ordinary income, they can lift a retiree into a higher bracket, increase the share of a Social Security benefit that is taxed, and trigger the income-related surcharges that raise Medicare Part B and Part D premiums two years down the line.
There are ways to soften the blow. A qualified charitable distribution lets a retiree route IRA money straight to a charity, satisfying the required withdrawal without adding it to taxable income, a maneuver that can also hold down Medicare surcharges. Retirees with several IRAs can total the required amounts and pull the full sum from a single account, though balances in 401(k) plans generally must be calculated and withdrawn plan by plan. A surviving spouse who inherits an account faces a separate set of timing rules, and non-spouse heirs now contend with a 10-year drawdown clock added by the same law.
The charitable route and its yearly ceiling
The qualified charitable distribution is the most direct way to blunt the tax, and it carries a generous but capped allowance. For 2026 an account owner can send up to $111,000 straight from an IRA to a qualifying charity and have it count toward the required withdrawal without the money ever entering taxable income, a limit the agency spells out in Publication 590-B. The ceiling is indexed for inflation, up from $108,000 in 2025, and spouses can each use a separate limit from their own accounts. A quirk in the timing favors the charitably minded: the charitable transfer becomes available at age 70 and a half, more than two years before the mandatory distributions themselves begin, letting a giver start shrinking a balance before the age-73 formula ever applies.
Roth conversions work the opposite lever. Shifting money from a traditional IRA to a Roth during the lower-income years between leaving work and turning 73 moves future growth into an account that carries no lifetime required distribution, trimming the balance the age-73 divisor will later act on. The tradeoff is a tax bill in the conversion year, so the maneuver rewards savers who plan it across several returns rather than in a single lump.
None of those options rewards inattention. The excise tax applies to the gap between what was required and what was taken, regardless of intent, and the December 31 deadline does not move for a forgotten statement or a delayed brokerage transfer. For the growing share of retirees whose largest asset is a tax-deferred account, the practical lesson is that the withdrawal schedule is not optional planning advice but a federal requirement with a price attached, and that price is measured against the money left in the account, not the money in a checking balance.
This article was produced with the assistance of artificial intelligence and reviewed by The Financial Wire editorial team.
More Financial Reading
- How many CDs can you park at 1 bank? FDIC rules you must know
- What really happens to your joint savings account when you die?
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
