Retirement Retirement Planning

The IRA Rule That Matters Most Once You’re Within 3 Years of Retirement

The IRA withdrawal rule that could make or break your retirement income.

By Tobi Amure, CFEI® , Edited by Lisa Dammeyer

Updated April 14, 2026

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Retirement usually feels real about three years before you stop working. At that point, every dollar you keep or lose may directly affect how long your savings last. One overlooked IRA rule in particular could quietly change your tax bill and monthly income for the rest of your life.

This rule involves when withdrawals move from optional to required, and what happens if you are not ready. Misunderstanding it may lead to surprise taxes, avoidable penalties, and withdrawals you did not plan to take. In the following article, we'll discuss what this rule is, why it matters, and how you can avoid money mistakes by following IRA rules.

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The one IRA rule to know as you near retirement

One IRA rule tends to rise above the rest as retirement approaches: required minimum distributions, or RMDs. These are mandatory withdrawals from most traditional IRAs once you reach a certain age. The IRS generally expects most traditional IRA owners to begin taking RMDs in the year they turn 73.

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How RMDs work

Your required beginning date usually falls on April 1 of the year after you reach your RMD age. After that, you must take each year's withdrawal by Dec. 31 to stay on track. Roth IRAs work differently because original owners do not face lifetime RMDs, which can make them a powerful planning tool.

Failing to take an RMD or taking too little may trigger a steep penalty of up to 25% of the distribution amount. That penalty may drop to 10% if you correct the mistake within the allowed window. Even with that relief, an unnecessary penalty may still take a painful bite out of your retirement savings.

Why it matters as you get closer to retirement

Three years before retirement, your financial situation usually feels more real and less abstract. You can see your likely retirement income from savings, Social Security, part-time work, and any other sources you may have. That clarity makes it easier to spot how forced IRA withdrawals might change your tax bill.

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Tax implications of RMDs

RMDs do not care whether you feel ready to take money out or not. Once you reach the required age, those withdrawals join your other income and may push you into a higher tax bracket. That extra income can also affect how much of your Social Security is taxed and may raise Medicare costs.

When that happens, you keep less of every dollar you worked hard to save. More money goes to taxes and premiums, and less stays invested for future years. Near retirement, you have fewer chances to fix those surprises or rebuild your accounts.

Avoid costly surprises

As you get closer to retirement, mistakes involving IRA withdrawals hit harder than they would in your fifties. You do not have decades of paychecks ahead to cover a big tax bill. A single missed deadline may throw off your budget for the entire year.

If you miss your first required withdrawal, you might need to take two in one calendar year. That double withdrawal can drive up your taxable income more than you ever planned. On top of that, you may also face penalties for taking too little.

Assess your accounts fully before retiring

The window three years before retirement is a smart time to look at other related rules and choices associated with your retirement accounts. Some people use lower-income years to convert part of a traditional IRA to a Roth IRA. Others plan a careful order for withdrawals so traditional accounts supply income first while Roth money keeps growing longer.

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Use a calculator to estimate RMDs

When you're in the final stretch of your working years, it's time to get serious about your retirement plans. Start by getting a rough estimate of your future required withdrawals and possible tax bill.

Many investment firms and calculators can show projected RMDs based on your current balance and age. Seeing those numbers together with expected Social Security and other income may reveal years when taxes could jump.

Other RMD strategies

Next, you may want to look at small moves that can soften the impact before RMDs begin. You might take modest withdrawals earlier or do limited Roth conversions during lower-income years. If you already give to charity, consider sending part of an RMD directly instead.

You can also adjust how and when you take money from your accounts. Some people spread withdrawals across the year instead of waiting until December. That approach may help your monthly cash flow feel steadier and easier to manage.

Bottom line

No matter how well you've prepared for retirement, it pays to bring RMD rules into clear focus. They also affect whether your income feels steady or keeps jumping around from year to year. Understanding these rules early may help you avoid money moves that become expensive to fix later.

The good thing is, you do not need a perfect, detailed plan to get started with this. You mainly need rough numbers, a simple timeline, and a sense of when key rules apply. That basic picture can make decisions like Roth conversions and Social Security timing feel much less overwhelming.

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