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As December approaches, some older Americans must soon take required withdrawals from retirement accounts — and mistakes can be costly, according to financial experts.
Starting at age 73, most retirees must start required minimum distributions, or RMDs, from pretax accounts, based on your balances, age and an IRS “life expectancy factor.”
Your first RMD is due by April 1 of the year after turning 73, and Dec. 31 is the deadline for future withdrawals. Waiting until April 1 after turning 73 means you would need two RMDs that year.
Millions of retirees must follow complicated RMD rules or potentially face an IRS penalty. The requirements can be difficult to follow amid changing legislation and IRS guidance, experts say.
“RMD mistakes rarely come from neglect. They come from complexity,” said certified financial planner Scott Van Den Berg, president of advisory firm Century Management in Austin. “People don’t realize how many accounts they have, who’s responsible for what or how quickly the rules have changed.”
If you don’t take your full RMD by the due date, the penalty is 25% of the amount you should have withdrawn. But that can be reduced to 10% if the RMD is “timely corrected” within two years, according to the IRS.
Here are some of the biggest RMD mistakes and how to avoid them.
One of the ‘biggest mistakes’ is waiting
While Dec. 31 is the RMD deadline for most retirees, many investors don’t start the process soon enough, according to CFP Tom Geoghegan, founder of Beacon Hill Private Wealth in Summit, New Jersey.
“One of the biggest RMD mistakes is waiting until December to sort everything out,” he said. “When retirees rush, they are more likely to miscalculate the [RMD] amount, sell the wrong assets or miss the deadline altogether,” he said.
By starting early, there is more time to verify the year-end balance needed to calculate the RMD, confirm beneficiary details and pick the best way to pull cash from the portfolio, Geoghegan said.
Missed accounts
When calculating RMDs, you need to consider the requirements for each one and tally each RMD for your final number.
But one of the biggest mistakes is skipping accounts, such as an old 401(k), a forgotten rollover or an inherited individual retirement account from years ago, said Van Den Berg of Century Management.
However, you can avoid this error by making a “master list” of your accounts every January, including which company holds the assets and the RMD requirements for each one, he said.
‘Underused’ qualified charitable distributions
If you donate money to charity, you can use so-called qualified charitable distributions, or QCDs, which are direct transfers from an IRA to an eligible nonprofit, to reduce RMDs.
The move is “underused” and can satisfy your yearly RMD, according to Geoghegan of Beacon Hill Private Wealth.
Once you’re age 70½ or older, you can use QCDs to donate up to $108,000 in 2025. For married couples filing jointly, spouses aged 70½ or older can also transfer up to $108,000 from their IRA.
Another benefit of QCDs is the strategy will “keep the income off the tax return, which helps with Medicare surcharges,” Geoghegan said.
