Do Not Let These Common RMD Mistakes Cost You
You may be responsible for taking a Required Minimum Distribution, also called an RMD. Missing this requirement or handling it incorrectly can lead to penalties of up to 25 percent. Understanding the rules now can help protect your savings and prevent an unnecessary tax bill.
If you have money in a traditional IRA, 401(k), or other tax-deferred retirement plan, then you are required to withdraw a minimum amount each year once you reach a certain age. The government uses these withdrawals to collect tax on money that has grown tax-free for many years. The rules are strict, and the penalties are serious. The good news is that most mistakes are easy to avoid once you understand them.
1. Missing the deadline or taking too little
For most people, the deadline for taking an RMD is December 31. If you do not withdraw the required amount, you may face a penalty equal to 25 percent of the amount that should have been taken.
What to do:
Mark your calendar now. If you have just reached the age where RMDs apply, ask your plan administrator or financial advisor to help you calculate your required amount and confirm your deadline.
2. Thinking you do not need an RMD when you actually do
Some individuals believe that they can skip the RMD because they are still working. This exception only applies in limited situations and usually does not apply to IRAs or to plans from past employers. You may still owe an RMD even if you are employed.
What to do:
Review all of your retirement accounts. Confirm which accounts require withdrawals this year and whether any exceptions apply to you.
3. Confusing the rules for multiple accounts
If you have several retirement accounts, the RMD rules can differ:
- With IRAs, you may be able to combine the total amount and withdraw it from one IRA.
- With multiple 401(k) accounts, you generally must take a separate RMD from each plan.
- Spouses cannot combine their RMDs. Each person must take their own required amount.
What to do:
Make a complete list of every retirement plan you own. Confirm the RMD rules for each account. Consider simplifying your accounts when appropriate.
4. Rolling over money before taking the RMD
An RMD must be taken before you roll over a retirement account. You cannot include the RMD amount in a rollover. If you do, the IRS will treat it as a mistake and you may face penalties.
What to do:
If you plan to roll over a retirement account this year, make sure the RMD is taken out first.
5. Misunderstanding charitable giving or thinking you must spend the money
You do not have to spend your RMD. You may reinvest it, save it, or use it for family expenses such as education savings.
If you want to donate your RMD to charity, you must use a Qualified Charitable Distribution (QCD). The transfer must go directly from your retirement account to the charity in order to count correctly.
What to do: If you are considering a charitable gift, talk with your advisor about setting up a QCD before you begin the process.
Why this matters
Required Minimum Distributions are not optional. The IRS watches them closely. Mistakes can lead to large penalties that reduce your retirement savings. Taking a few minutes now to confirm your deadlines and amounts can save a great deal of stress later.
Final tip
If you are age 73 or approaching that age, schedule a quick meeting with your financial or tax advisor. Bring a list of your retirement accounts and ask these four questions:
- Which accounts require an RMD this year?
- What is the exact amount I must withdraw?
- What is my deadline?
- Should I consider any charitable or strategic planning options?
Planning ahead can help ensure you stay in compliance and keep more of your hard-earned retirement savings.
Source: https://www.cnbc.com/2025/11/24/biggest-required-minimum-distribution-mistakes-.html