Five RMD Mistakes That Cost Retirees Thousands

December 30th. You’re wrapping up holiday plans when you remember—did you take your required minimum distribution this year?

For retirees who’ve been managing RMDs for years, this moment might bring a quick mental checkmark. But for those handling their first few years of distributions, or juggling multiple accounts, that sinking feeling can hit hard.

The rules seem simple enough: withdraw a certain amount from your retirement accounts each year starting at age 73. Yet the execution trips up more retirees than you might expect.

The costly mistakes rarely come from misunderstanding the basic requirement. They happen because of timing issues, forgotten accounts, or missing the connection between your RMD and the rest of your financial picture. What seems like a small oversight in the spring can turn into a significant tax problem by year-end.

Here are five mistakes that cause the most trouble for retirees, along with practical ways to avoid them.

Waiting Too Long for Your First Distribution

The IRS gives you until April 1 of the year after you turn 73 to take your first RMD. That deadline might feel like welcome flexibility, but there’s a catch. When you delay your first distribution, you end up taking two full RMDs in one calendar year—one by April 1 and another by December 31.

Both withdrawals land on the same tax return. Your income jumps, possibly pushing you into a higher bracket. Medicare premiums can increase. More of your Social Security becomes taxable. The tax bite from waiting those few extra months can be substantial.

What to do instead:
Before your first RMD year arrives, look at both options. Calculate what happens if you take the distribution in December versus waiting until the following April. For most retirees, taking it in that first December gives you better control over your tax situation and avoids that double-distribution year entirely.

Losing Track of Old 401(k) Accounts

Thirty years of working means retirement savings spread across different employers. Each of those old 401(k) accounts needs its own RMD calculation and its own separate withdrawal. Overlook just one account and you face an IRS penalty of 25 percent of what you should have withdrawn. Even if you catch it quickly and get that reduced to 10 percent, you’re still paying unnecessarily.

What to do instead:
Before your first RMD year, make a complete list of every retirement account in your name—traditional IRAs, old 401(k)s, 403(b)s, anything that holds tax-deferred money. Pull out old statements, call former employers, or search the National Registry of Unclaimed Retirement Benefits if needed. Then talk with a financial professional about consolidating those scattered accounts into one IRA. You’ll still calculate your RMD based on all your balances, but you can take the entire amount from a single account. Much simpler.

Forgetting These Distributions Are Fully Taxable

When you see your RMD amount on a statement, it can feel like extra money to use however you want. But every dollar withdrawn counts as ordinary income. That affects more than just your tax bill—it can push more of your Social Security into the taxable range and trigger IRMAA surcharges that increase your Medicare costs.

What to do instead:
If you don’t actually need your RMD for living expenses, look into qualified charitable distributions. You can direct up to $100,000 per year from your IRA straight to a qualified charity. This satisfies your RMD requirement but keeps that money off your tax return completely. No charitable deduction, but also no increase in taxable income or Medicare premiums. For retirees who already give to charity, this strategy makes tremendous sense.

Selling Investments at the Wrong Time

When December arrives and you suddenly remember your RMD, you might need to sell investments quickly to meet the deadline. If the market happens to be down, you lock in losses that could have recovered with better timing. This pattern—rushing to withdraw at year-end—can chip away at your portfolio’s value over time.

What to do instead:
Spread your withdrawals throughout the year. Take part of your RMD in March, another portion in July, and the rest in October. This gives you flexibility to pull from cash reserves when markets drop and sell investments when values are stronger. You’ll also avoid the stress of scrambling in December while holiday expenses pile up.

Treating RMDs as Just a Requirement

Most retirees withdraw exactly the minimum because that’s what the name says to do. But your RMD can serve purposes beyond satisfying the IRS. Taking slightly more than required might help you rebalance your portfolio, fund Roth conversions that lower future taxes, or free up cash for goals like helping family or paying down debt.

What to do instead:
Each fall, sit down and look at your complete financial picture. Does your RMD amount make sense for what you’re trying to accomplish this year? Would taking more help you in other ways? Could you pair your withdrawal with a Roth conversion while tax rates remain favorable? Your RMD shouldn’t stand alone—it should connect to your broader retirement strategy.

Staying Organized Before Year-End

October is the right time to review your RMD plan before the holiday rush takes over. A simple checklist helps:

• Set a reminder each October to review your RMD schedule.
  
• Verify your calculations using the IRS Uniform Lifetime Table or ask someone to check them.
  
• Plan your withdrawals early if accounts sit at different institutions.
  
• Talk with your tax advisor about how this year’s distribution affects your overall income and Medicare costs.
  

Taking these steps in the fall prevents December panic and keeps your finances steady heading into the new year.

What Really Matters

Managing your RMDs well means keeping control over your retirement income and taxes. Retirees who handle this successfully treat their yearly withdrawal as one piece of a larger plan, not something to rush through at the last minute.

If you’re uncertain about your RMD calculations, or if multiple accounts are making this more complicated than it needs to be, now is the time to get help. A little planning before year-end can prevent unnecessary taxes and penalties.

For help reviewing your RMD strategy and coordinating it with your retirement income plan, call Barb Swiatek at 719.597.2179 TODAY.