Most Americans 73 and older won't have to worry too much about required minimum distributions (RMDs) again for a while. They have nearly 11 months left to take their 2025 distribution. But those who turned 73 last year may still be trying to sort out their 2024 RMD.
These mandatory annual withdrawals are the government's way of forcing you to take money out of select retirement accounts so it can get its cut. But they can also be confusing for those who are new to them. Here are the three RMD mistakes you should avoid if you want to pay the IRS as little as possible.
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1. Not taking your RMDs on time
Most adults 73 and older must take their RMDs by Dec. 31 of the year in question. For example, 2025 RMDs must be completed by Dec. 31, 2025. However, there's an exception for your first RMDs.
Those who turned 73 last year have until April 1, 2025, to take their first RMD. As long as you do this, you can avoid the 25% penalty tax the IRS assesses on the money you should have withdrawn. Note that if you haven't taken your 2024 RMD yet, you will have to take two RMDs this year -- one for 2024 and one for 2025.
If you accidentally forget to take an RMD, it's important to act quickly. Withdraw the required amount of funds as soon as you can and file an amended tax return for the appropriate year with the IRS. If you do this within two years of when you were supposed to take the RMD, the government will drop the penalty tax to 10%.
2. Taking RMDs when you don't have to
Taking unnecessary withdrawals from your retirement accounts won't get you in trouble with the IRS like failing to take your RMDs will. But it could raise your tax bill and cause you to miss out on a valuable opportunity to grow your savings even more.
You don't have to take RMDs from Roth retirement accounts. You may also get to skip an RMD from your workplace retirement plan if you're still employed and own less than 5% of your company. In this case, RMDs from this account begin in the year after you retire. You'll still have to take RMDs from traditional IRAs or old workplace retirement plans, even if you're currently employed.
It's fine if you want to withdraw money from these accounts or if you decide to withdraw more than your RMD. Just remember that you don't have to if you don't want to.
3. Taking money out to donate it to a charity
Donating your RMD to a charity is the only real way to get around an RMD tax increase. But there's a certain way you have to do it. You must have your retirement plan administrator transfer the funds to a qualifying charitable organization that you choose. This is known as a qualifying charitable distribution (QCD).
If you withdraw the money first and then donate it to a charity, you would be able to write this donation off if you itemize deductions. However, you would also have to report the RMD as income on your tax return.
With a properly executed QCD, the money comes out of your account, but the IRS treats it as if the withdrawal never happened. You get the benefit of helping out a good cause and your tax liability doesn't increase at all.
If you have any questions about whether you still need to take a 2024 RMD or how to do it, it's best to consult a tax professional in your area. They can give you personalized advice based on your situation.
