If you’ve ever thought, “I’ll just let that IRA (401k, 403b, ESOP, etc.,)  sit and grow forever,” I’ve got some news that might wrinkle your retirement dreams just a bit…

Uncle Sam has other plans.

See, when you put money into a traditional IRA or 401(k), the government gives you a little tax break on the front end. It’s like they’re saying,

“Hey, no worries—don’t pay taxes now. We’ll just circle back later.”

Well… later is now. And guess what? The deferment is effectively a loan!

Welcome to the magical world of RMDs—Required Minimum Distributions.

Here’s how it works:

Once you hit age 73 (or 75 if you were born in 1960 or later), the IRS requires you to start pulling money out of those tax-deferred accounts.

You don’t get to pick the amount—it’s calculated based on your account balance and life expectancy.

And oh yes—you definitely pay taxes on those withdrawals, whether you need the money or not. (The loan comes due with an interest rate you also don’t get to choose.)

But wait, it gets juicier – there’s a penalty for getting it wrong!

If you miss your RMD or withdraw too little, the IRS can slam you with a 25% penalty on the amount you should have taken. Yes, 2-5. As in, “take $10,000 too little and they keep $2,500.” 

[Caveat: if you correct the failure within two years, the penalty may be reduced to 10%. You can also request a waiver of the penalty by filing IRS Form 5329 with a letter explaining the reasonable cause for the missed RMD, such as illness or error, and confirming that you’ve taken the required distribution. The IRS may waive the penalty if the error was reasonable and corrected promptly.]

That’s not a typo. That’s a tax ambush in broad daylight. (By the way – it was 50% before the latest change.)

Now, here’s where smart planning comes in:

A good retirement plan doesn’t just say, “Take your RMD and move on.”

A great retirement plan studies:

  • When to start withdrawals (earlier may be better in some cases)
  • How to blend your income sources to stay in a lower tax bracket
  • Whether Roth conversions now might reduce future RMDs
  • How to prevent RMDs from messing with your Medicare premiums
  • And how to minimize taxes across your entire retirement—not just one year

In short: it’s not just about taking money out. It’s about planning the distribution correctly!

Want help navigating the RMD minefield before Uncle Sam starts collecting tolls?

Be sure schedule some time us discuss the current rules vis a vis your situation!

Let’s make sure your retirement withdrawals are working for you… not the IRS.

Kick butt, plan smart, and dodge those IRS traps! Give us a call or schedule a conversation: click here.