6 RMD Mistakes Retirees Must Avoid Before Year-End
Year-end RMD errors can lead to penalties and unexpected tax burdens for retirees.
1What Are RMDs and Why Do They Matter?
Required Minimum Distributions (RMDs) are annual withdrawals that retirees must take from retirement accounts starting at age 73, with most due by December 31. These withdrawals impact Social Security, Medicare premiums, and tax liabilities. Without proper planning, retirees may face hefty penalties (up to 25% of the required amount) and unexpected tax hikes. Understanding RMD rules is crucial for long-term financial health.
21. Waiting Until the Final Week
Delaying your RMD until late December risks missing the deadline due to processing delays. Brokerages often require several business days to complete transactions, and holiday closures can extend timelines. A missed deadline triggers a 25% excise tax on the undistributed amount. To avoid stress, schedule withdrawals by mid-December and confirm completion. Note: After your first RMD year, annual withdrawals must occur by December 31.
32. Assuming Automatic Calculations
While some financial institutions calculate RMDs automatically, this isn’t universal. If you hold multiple IRAs or old 401(k)s, you’re responsible for ensuring the correct total withdrawal across all accounts. Verify each account’s RMD calculation method—what’s “automatic” for one may not apply to others. A quick call to your custodian now can prevent costly corrections later.
43. Overlooking Tax Implications
RMDs are taxed as ordinary income and can push you into a higher tax bracket. A $15,000 RMD might increase federal taxes and trigger Income-Related Monthly Adjustment Amounts (IRMAA), raising Medicare Part B/D premiums two years later. It could also make more of your Social Security benefits taxable. Before large withdrawals, evaluate whether federal or state tax withholding makes sense for your situation.
54. Missing Qualified Charitable Distributions (QCDs)
IRA owners aged 70½+ can use QCDs to donate directly to charities (up to $100,000/year) from their IRA, satisfying RMDs tax-free. For example, if you donate $5,000 annually to a nonprofit, a QCD avoids counting that amount as taxable income. Strict IRS rules apply: Funds must go directly to qualified charities, and you can’t claim a deduction. Ideal for retirees who donate regularly.
65. Neglecting Beneficiary Updates
While beneficiary designations don’t affect current RMDs, outdated forms complicate inheritances. Life events like marriage, divorce, or a spouse’s death necessitate updates. An old beneficiary could force heirs into accelerated distribution timelines or legal hurdles. Year-end is an ideal time to review paperwork—simple updates often take minutes but are easily forgotten during holidays.
76. Failing to Plan for Next Year
After completing this year’s RMD, strategize for the next. Projecting income may reveal opportunities to spread withdrawals, consider Roth conversions before RMDs grow larger, or coordinate with other retirement income. These discussions are best held before January, when you still have flexibility to adjust tax strategies. Proactive planning minimizes surprises as RMD percentages rise with age.
8The Cost of RMD Mistakes
The penalty for missing an RMD is 25% of the required amount (e.g., $10,000 on a $40,000 RMD). Errors like incorrect calculations or missed deadlines are common but avoidable. Legislative changes matter too: The RMD age rose to 73 in 2023 and will reach 75 by 2033. Staying informed helps optimize retirement income and avoid unnecessary penalties.