From 24/7 Wall St. · Joel South · · 3m
Your winning stock becomes a tax bomb at 73
Required IRA withdrawals force you to sell appreciated stocks and pay taxes, even if you'd rather hold forever.
In brief
Required IRA withdrawals force you to sell appreciated stocks and pay taxes, even if you'd rather hold forever. Place high-growth stocks in Roth accounts where required minimum distributions never apply, rather than traditional IRAs where they trigger forced taxable withdrawals. Originally reported by 24/7 Wall St..
The IRS writes your withdrawal schedule at 73
When you turn 73, the IRS forces you to withdraw money from traditional IRAs and 401(k)s through required minimum distributions, or RMDs. You have no choice, even if you love the stock and want to hold it forever.
Winning stocks create bigger tax problems
The more your stock has appreciated, the worse your tax hit gets. A 10-bagger inside a traditional IRA becomes a tax bomb because the IRS calculates your RMD based on the full current value, not what you paid for it.
Apple shows the math gone wrong
Apple stock returned 1160% over ten years. If you bought a modest amount a decade ago in a traditional IRA, that position is now huge, and the IRS uses that large number to compute your RMD, not your original cost.
Dividends won't cover the forced withdrawal
Apple's dividend yield is 0.32%, but your RMD percentage at 73 is much higher. You'll have to sell shares or transfer them to a taxable account, and either way the fair market value counts as ordinary income.
The law and the age timeline
The SECURE 2.0 Act of 2022 raised the RMD starting age from 72 to 73, effective 2023. It's scheduled to rise again to 75 in 2033. Your first RMD is due by April 1 of the year after you turn 73.
Roth accounts escape the RMD trap
RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and 457(b)s. They do not apply to Roth IRAs during your lifetime, and Roth 401(k) RMDs were eliminated in 2024. Same Apple shares, zero forced withdrawals.
Three ways to handle the distribution
Transfer shares in-kind to a taxable account to keep the position intact. Route up to $108,000 to a qualified charity as a Qualified Charitable Distribution if you're 70 and a half or older. Or simply take the cash and report it on your 1040.
Miss the deadline, face a 25% penalty
Skip an RMD and the IRS charges a 25% excise tax on the shortfall under SECURE 2.0, down from the old 50%. Fix it inside the correction window and it drops to 10%. Either way, you're penalized on money you were forced to take out.
Placement matters more than stock picks
High-growth stocks like Apple compound harder inside a Roth, where the IRS never comes knocking. A big pre-tax balance eventually becomes a big taxable withdrawal. Make the placement decision before your birthday does the choosing for you.
The bottom line
Place high-growth stocks in Roth accounts where required minimum distributions never apply, rather than traditional IRAs where they trigger forced taxable withdrawals.
