Every December, as people rush to finish their holiday shopping and make travel plans, there’s another deadline quietly ticking down in the background — one that could cost retirees thousands if ignored. We’re talking about Required Minimum Distributions, or RMDs.

For anyone who owns a traditional IRA, SEP IRA, SIMPLE IRA or most types of employer retirement plans like 401(k)s, the IRS requires you to start withdrawing a minimum amount each year once you reach a certain age. And if you miss the deadline — Dec. 31 — you could face a hefty tax penalty.

But this isn’t just about avoiding penalties. It’s also about using your RMDs strategically — turning a required withdrawal into an opportunity for smarter income planning, charitable giving or reinvestment. Let’s break it down.

When RMDs start — and how they’re calculated

Under current rules, RMDs start at age 73 for most retirees. (If you turned 72 before 2023, your start date follows the old rule — so check your specific situation.)

If it’s your first RMD, you actually get a little extra time. You can delay your first withdrawal until April 1 of the following year — but that means you’ll have two RMDs due in that next year, which could bump you into a higher tax bracket. For most people, it’s better to take the first one in the same year you turn 73 and avoid the double dip.

Your RMD amount is based on your account balance from Dec. 31 of the previous year divided by a life expectancy factor from the IRS’s Uniform Lifetime Table. In simple terms, the government looks at how much you’ve saved and how old you are and calculates how much you must take out each year to make sure Uncle Sam eventually gets his tax share.

These withdrawals count as taxable income, which can also affect other areas of your retirement — like your Medicare premiums and Social Security taxation. That’s why careful timing and planning matter.

Why taking your RMD early might make sense

While many retirees like to wait until December to take their RMD — sometimes to give investments more time to grow or to earn additional interest — there are situations where taking it earlier in the year makes good sense.

1. Smoother cash flow: Instead of a lump-sum withdrawal at year-end, you can spread your RMDs across the year in monthly or quarterly payments. This can make budgeting easier and help maintain a steady income stream.
2. Market volatility: If the markets are down late in the year, waiting too long could mean selling investments at lower prices. Taking part of your RMD earlier helps reduce that risk.
3. Avoiding tax rush: Taking your RMD early gives you and your tax advisor time to plan around other income sources — like Social Security, pensions or part-time work — and avoid surprises come April.
4. Reducing IRMAA (Medicare premiums): If your income is near one of the Income-Related Monthly Adjustment Amount, or IRMAA, thresholds, spreading or controlling when your RMD hits could help you stay below a higher premium bracket.

Remember: the IRS doesn’t care when you take it, as long as it’s out by Dec. 31. You just don’t want to be one of the many who remember on New Year’s Eve.

What happens if you miss it

In the past, the penalty for missing an RMD was a painful 50% of the amount you should’ve withdrawn. Thankfully, the SECURE 2.0 Act reduced that to 25%, and in some cases 10% if you correct it quickly.

Still, even a 10% penalty on a $40,000 RMD is $4,000 — money that could’ve gone toward your grandkids, your church or a nice family vacation. The point is simple: missing your RMD isn’t worth the stress.

Using your RMD wisely

Yes, you have to take it–but that doesn’t mean you can’t make it work for you. Here are a few smart ways to put your RMD to use:

1. Fund your living expenses

This one’s obvious but often overlooked. Many retirees use their RMD to cover annual expenses — property taxes, insurance premiums, travel or medical costs. Turning the withdrawal into purposeful spending keeps it from sitting in a checking account collecting dust.

2. Make a charitable gift (and avoid taxes)

If you’re feeling generous, consider a Qualified Charitable Distribution, or QCD. This allows you to give up to $100,000 per year (per person) directly from your IRA to a qualified charity — without counting it as taxable income.

That’s right — by sending your RMD directly to a 501(c)(3) charity, you satisfy the IRS requirement and reduce your tax bill. For many retirees, this is one of the most tax-efficient ways to support causes they care about.

Think of it as giving and saving in the same motion.

3. Reinvest in safer vehicles

If you don’t need your RMD to live on, consider reinvesting it in a more conservative, tax-advantaged place — such as a fixed index annuity, a tax-free life insurance strategy or even a Roth conversion (if appropriate).

Each of these options can provide future growth potential while reducing your taxable footprint down the road.

Just remember: Once the RMD comes out of your IRA, it’s considered income. But where it goes after that can still work in your favor if you plan strategically.

The bottom line

The end of the year brings enough deadlines and distractions — holiday parties, family gatherings and travel plans. Don’t let your RMD slip through the cracks.

Think of it like a play clock in football: The rules are clear, the time is ticking and a delay costs you yardage — or in this case, dollars.

If you’re unsure how much to take, when to take it, or how to put it to best use, talk with your financial professional before the year ends. They can help you calculate your RMD accurately, explore QCDs or reinvestment options and ensure your strategy fits your broader retirement plan.

Because in retirement, it’s not just about what you have — it’s about what you keep.

So before you hang the stockings and wrap the gifts, check one more list:

• RMD amount calculated
• Distribution scheduled
• Taxes planned

Santa may be checking who’s naughty or nice — but the IRS is checking who’s compliant.

And that’s a list you definitely want to stay on the right side of.

Lyle Boss, The REAL BOSS Financial, endorsed by Glenn Beck as the premier retirement advisor for Utah and the Mountain West States. Boss Financial, 955 Chambers St. Suite 250, Ogden, UT 84403. Telephone: 801-475-9400. https://www.safemoneylyleboss.com/