Retirement Retirement Planning

The IRS Rule That Forces a Tax Bill at 73 - And Most Retirees Never See It Coming

Make sure you know what it is and how to plan for it.

By Catherine Collins , Edited by Laura Hohenstein

Updated Sept. 2, 2026

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Most people spend decades diligently contributing to a 401(k) retirement plan, waiting to hit a specific number to be able to retire from work once and for all. However, once you retire, the financial planning doesn't stop. Understanding how to maximize your retirement income, avoid penalties and fees, and minimize taxes is an important part of preserving your nest egg.

There's one retirement rule that can have a major impact on your retirement income as well as your tax bill, so it's important to be aware of it. This is, of course, the Required Minimum Distributions (RMDs) rule. Here's more information about it and why it's important.

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What Required Minimum Distributions are and why they matter

Required Minimum Distributions (RMDs) are withdrawals that you have to make from your traditional 401(k) plan by law. That's because when you contribute money to a traditional 401(k) plan, you lower your taxable income. Once you hit a certain age, the government requires you to withdraw the money and pay taxes on it because it grew tax-deferred.

You must make RMDs whether or not you actually need the money in retirement. It's important to know this because failing to make RMDs can result in heavy penalties and fees.

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Your required RMD age depends on the year you were born

If you were born between 1951–1959, your RMDs begin at 73. However, for those born in 1960 or later, the RMD age will be 75.

Generally, pushing RMDs to a later age will allow the accounts to compound and grow, but it also means that some retirees will have to withdraw a larger amount based on the IRS calculations.

How the IRS calculates your RMDs and how to prepare for them

The IRS has a calculation for RMDs. It starts by taking your retirement account balance on December 31 in the year before you start taking RMDs. Then, it divides that number by a factor for life expectancy, which is listed on a table on the IRS website.

You are responsible for ensuring you pay the correct distribution amount, and failing to take it can create penalties and fees of up to 25%.

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You can delay your first RMD, but it may have tax consequences

Another useful piece of information is that your first RMD can be delayed to April 1 of next year, but that decision has some drawbacks too.

Essentially, if you delay your first RMD, it means you'll have two RMDs in the same year, which can create a higher income than expected. That, in turn, can create higher taxes and push you into a bracket that can tax Social Security benefits and trigger Medicare IRMAA surcharges in the future.

Some types of retirement accounts don't require RMDs

If the thought of RMDs feels stressful and you're still a few years away from retirement, there are some types of retirement accounts that don't require RMDs.

Roth IRAs and Roth 401(k)s do not require RMDs because you contribute to them with after-tax income. Not only that, but you can leave the money in your Roth IRA as long as you like. There's no requirement to withdraw money from them if you don't need it, which can allow your money to grow and compound for decades more.

Steps to take to reduce the impact of RMDs

There are a few steps you could take to reduce the financial impact of RMDs, and speaking with an accountant or financial planner can help determine the best steps for your personal situation.

One option is completing a back-door Roth conversion during your lower-income years after you retire but before your RMD requirements start.

There's also the option to make qualified charitable distributions, which can count as an RMD without adding to your taxable income. Finally, avoiding taking out two RMDs in the same year can also help reduce the income increase and, by extension, a higher-than-expected tax bill.

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If you need retirement planning help, work with a professional

As mentioned, if you're not sure of the best next steps for you, work with a tax professional or a financial advisor who can help you run the numbers to determine how taking RMDs can impact your overall retirement strategy. These professionals can also make recommendations on how to reduce the financial impact that RMDs can have on your tax returns.

Bottom line

Ignoring RMDs can be a costly financial mistake. If you're not sure whether or not you're following the correct RMD rules in your retirement account, it's best to check with a financial advisor who can guide you in the right direction.

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