Turning 73? The IRS Will Confiscate 25% of Your Savings If You Forget This 'One Withdrawal'

💸 The "Do Nothing" Penalty

Imagine you have $500,000 saved in your Traditional IRA. You are 74 years old, living comfortably on Social Security, and you intend to let that IRA grow for your grandchildren.

One day, you receive an official notice from the IRS. It states you failed to withdraw your "Required Minimum Distribution" (RMD) of $20,000.

Because you missed the deadline, the IRS assesses an Excise Tax penalty on the amount you didn't withdraw. While the standard penalty is 25%, acting fast is crucial—it can be reduced to 10% if corrected within the IRS "correction window." Still, ignoring this means welcoming a hefty fine for doing absolutely nothing.

The U.S. government has allowed you to save money tax-deferred for decades (in IRAs and 401ks). Now, they want their tax revenue. They won't wait forever.

Under the SECURE Act 2.0, the RMD age is set at 73 (scheduled to rise to 75 starting in 2033). However, confusion remains common among seniors regarding these shifting dates in 2026. 

Turning 73?

How Much MUST You Withdraw?

You don't get to choose the amount. It is calculated based on your Account Balance (as of Dec 31st last year) divided by a Life Expectancy Factor (from IRS Publication 590-B).

🧮 Example Calculation

• Age: 75
• IRA Balance: $100,000
• IRS Divisor Factor: 24.6 (This number shrinks as you age)
• Calculation: $100,000 ÷ 24.6 = $4,065.04
• Result: You MUST withdraw at least $4,065.04 by Dec 31st. If you only withdraw $2,000, you pay a penalty on the missing $2,065.

The "First Year" Trap

There is a special rule for the year you turn 73. You have until April 1st of the FOLLOWING year to take your first withdrawal (your Required Beginning Date).

Warning: If you wait until April 1st of the next year, you will be required to take TWO distributions in that same tax year (the delayed one from last year + the current one for this year).
👉 Why is this bad? Taking two lump sums might push you into a higher federal tax bracket and double your Medicare IRMAA premiums. Furthermore, state income tax implications vary (e.g., California vs. Texas), so this stacking effect can be costly. Usually, it's better to take the first one by Dec 31st of the actual year.

How to Avoid Taxes (The 'QCD' Secret)

Don't want the money? Don't want to pay taxes on it? Use a Qualified Charitable Distribution (QCD).

Instead of withdrawing the cash to your bank account (which counts as taxable income), you instruct your IRA custodian to send the money directly to a qualified charity (like your church or Red Cross).
✅ It satisfies your RMD requirement.
✅ It does NOT count as taxable income.
✅ It keeps your AGI low, protecting your Social Security benefits from taxation.

🛡️ Chief Editor’s Verdict

The IRS does not send reminder cards. This responsibility is yours alone.

1. Automate It: Call your custodian (Vanguard/Fidelity/Schwab) and set up "Automatic RMD." They will calculate it and send you the check every December.
2. Missed a Deadline? Don't panic. Withdraw the money immediately and file IRS Form 5329. Attach a letter of explanation (e.g., "Medical illness" or "Advisor error"). The IRS often reduces the penalty to 10% or waives it entirely for first-time offenders who correct the error promptly.

Take the money, or give it to the IRS. The choice is yours.

Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or tax advice. Tax laws, including the SECURE 2.0 Act, are subject to change. State tax laws vary significantly (e.g., CA, NY, MA). Please consult with a qualified CPA or tax attorney to discuss your specific situation before making any financial decisions.