RMDs…Anyone? Anyone?

If you’ve never heard of a Required Minimum Distribution, don’t worry – most people haven’t until it’s already knocking at the door.

A surprising number of high earners, professionals, and even financially savvy retirees find out about RMDs late in the game. That’s not because they weren’t paying attention – it’s because this rule only shows up once it applies to you. And by then, you’re expected to act like you’ve always known.

So let’s change that. Here’s what an RMD is, why it exists, and how to avoid getting blindsided by it.

What Is an RMD?

RMD stands for Required Minimum Distribution. It’s a rule from the IRS that says, once you reach a certain age, you’re required to start withdrawing money from most of your retirement accounts even if you don’t need it or want to use it yet.

Why? Because those accounts gave you a tax break when you put money in. The government let you defer taxes for years, sometimes decades. But eventually, they want their cut.

So starting at age 73 (for most people), you have to begin taking out a minimum amount each year. If you were born in 1960 or later, that age will rise to 75.

Wait – So I Have to Take the Money Out?

Yep. Even if you’re still working. Even if you don’t need the income. Even if you’d rather let it keep growing.

And no, the IRS doesn’t send a friendly reminder. Your account custodian might notify you, but they’re not always proactive. You’re the one responsible for calculating the right amount, taking it out on time, and paying tax on it.

If you miss it? There’s a penalty. A steep one. The IRS can charge 25% of whatever amount you failed to withdraw. That can drop to 10% if you catch and fix the mistake quickly but it’s not guaranteed.

Which Accounts Are Affected?

RMDs apply to most tax-deferred retirement accounts, including:

• Traditional IRAs
• Traditional 401(k)s, 403(b)s, and other employer plans
• SEP IRAs and SIMPLE IRAs
• Inherited IRAs (with different rules)

Roth IRAs do not have RMDs during your lifetime. That’s a big reason they’re popular for long-term tax planning.

How Much Do I Have to Take Out?

There’s a formula based on your age and your account balance at the end of the previous year. The older you get, the larger the required percentage becomes.

At 73, you’ll be required to withdraw roughly 3.8% of your balance. At 80, it’s closer to 5%. And it keeps climbing.

You can always take out more than the minimum. But you can’t take out less without triggering that penalty.

What Happens If I Didn’t Know?

This is the part no one wants to say out loud: you might not have known. And you’re not alone.

If you don’t have a financial advisor watching this for you, it’s easy to miss. People often assume that once they retire, they’ll just leave their accounts alone until they need them. But the IRS has a different plan and you’re expected to follow it whether or not anyone explained it.

That’s why we’re teaching this in our advisor training. And that’s why we’re sharing it with you. Because this is a rule that punishes silence. The earlier you know, the more options you have.

Can I Do Anything About It?

Yes – and the earlier you start thinking about it, the more flexibility you have.

Some people reduce their future RMDs by doing Roth conversions in the years before RMDs kick in. Others start drawing down their accounts earlier in retirement to smooth out their tax picture. Some consolidate accounts to make RMD tracking easier.

It’s not about beating the system. It’s about planning ahead so the rule doesn’t take you by surprise or force you into a tax situation you could’ve avoided.

What to Ask Now

If you’re getting close to retirement age – or even if you’re still years away – start asking:

• Do I have accounts that will be subject to RMDs?
• When do my RMDs start, based on my birth year?
• Am I coordinating withdrawals across accounts?
• Could Roth conversions reduce my future RMDs?
• Do I have a plan to avoid penalties?

How Do I Handle This Without a Financial Advisor?

If you don’t work with a financial advisor, you’re still responsible for taking your RMDs correctly – but you don’t have to figure it out alone.

• Your account provider can help. Most major firms (Fidelity, Vanguard, Schwab, etc.) will calculate your RMD for you if you ask. Many even offer tools or automatic withdrawals.
• You don’t have to file a special form in advance. You simply withdraw the money by the deadline (December 31 each year) and report it as income on your tax return.
• Your CPA can handle the tax side. They don’t usually initiate the withdrawal itself, but they’ll make sure it’s reported correctly and help you avoid mistakes.

The key is this: no one will force you to take it. That’s the trap. If you don’t know about it, no one’s coming to make sure it gets done. You have to ask – or at least know it’s time to act.

Bottom Line

RMDs are one of the most overlooked parts of retirement planning – not because they’re complicated, but because no one tells you about them until it’s almost too late.

Now you know. You know what they are, when they start, why they exist, and what happens if you ignore them. You don’t need to memorize IRS formulas or obsess over dates. You just need to know the rule exists and start thinking ahead.

And that alone puts you ahead of the curve.