You probably have a million things on your mind as you start to look toward upcoming holidays -- food, gifts, maybe even travel. But it's important to make some time for end-of-year retirement moves too.
If you're 73 or older and haven't taken your required minimum distributions (RMDs) yet, that should definitely be on your radar. But there are five common pitfalls you should be aware of before you start moving money around.
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1. Misunderstanding the RMD deadlines
You typically have to take your 2025 RMDs from your retirement accounts by Dec. 31, 2025. However, there are a few exceptions, including:
- Turning 73 in 2025: For the first year you're subject to RMDs only, you can wait until April 1 of the following years to take your RMD. However, if you do this, you'll have to take two RMDs in 2026 -- one for 2025 and one for 2026.
- Roth accounts: You aren't required to take RMDs from Roth 401(k)s or Roth IRAs. You fund these accounts with after-tax dollars, so you typically don't owe taxes on your withdrawals in retirement.
- Continuing to work: If you're still employed, you don't have to take an RMD from your current employer's retirement plan until the year after the year you retire. However, this doesn't get you out of RMDs for old 401(k)s or traditional IRAs.
It's best not to wait until the Dec. 31, 2025, deadline to take your RMD. Take care of it within the next few weeks so you can focus on enjoying the holiday season with one less to-do on your plate.
2. Using the wrong account balance to calculate your RMD
You calculate your RMD by taking your account balance at the end of the previous year -- Dec. 31, 2024, for your 2025 RMDs -- and dividing it by the distribution period next to your age in the IRS's Uniform Lifetime Table.
For example, if your account balance was $100,000 as of Dec. 31, 2024, and you just turned 73 this year, your 2025 RMD would be $100,000 divided by 27.4 -- the distribution period for 73-year-olds -- which comes out to about $3,650.
It's important to use the balance as of Dec. 31 of the previous year. Calculating it based on your current balance could lead you to withdraw less than you need to.
3. Failing to take your full RMD
There's a 25% penalty for failing to take your full RMD as scheduled. Continuing the previous example, if you had a $3,650 RMD and you didn't take it, the IRS would take $912.50 in penalties. That's probably more than you would've had to pay in income taxes if you'd just taken the RMD as scheduled.
If you forget to take your RMD by the deadline, act quickly to correct your mistake. If you take your RMD within two years and file Form 5329 with your federal tax return for the year you were supposed to take the RMD, the IRS will reduce the penalty to 10%. You'll need to include a letter of explanation with the form explaining what led to the error.
4. Misunderstanding the aggregation rules
If you have multiple retirement accounts, your RMDs are a bit more complicated. You can aggregate IRA RMDs, meaning you can take an amount equal to all your IRA RMDs from a single account. For example, if you have three traditional IRAs and they have RMDs of $1,000, $2,500, and $500 in 2025, it doesn't matter if you take all $4,000 from a single IRA or $1,333 from each. Any combination works as long as you withdraw at least $4,000 from your IRAs.
That's not how it works for 401(k)s, though. You must take an RMD from each 401(k) individually. If the three accounts above were 401(k)s instead, you would have to withdraw $1,000 from the first, $2,500 from the second, and $500 from the third at a minimum. If you took $1,500 from the first and none from the third, you'd pay the 25% penalty on the $500 RMD.
It's also worth noting that withdrawals one spouse makes from their retirement account can't count toward another spouse's RMD. Each partner must take their own RMDs.
5. Not planning for the tax impact
There's a chance you've already taken your RMD for the year to pay for normal living expenses. In that case, your RMD won't affect your tax bill much. But if you only took the funds out because you had to, you could see a slightly higher tax bill this year.
You may be able to get around this by making a qualified charitable distribution (QCD). This is where you request that your plan administrator give your money to a tax-exempt charity of your choosing. The plan administrator must send the money directly to the charity. It can't distribute it to you first.
If you do this, the IRS will consider your RMD satisfied for the year and it won't tax you on that amount. The maximum QCD you can make in 2025 is $108,000.
Consider speaking with an accountant if you're worried about how your RMD could affect your tax bill. It's better to do this sooner rather than later so you have time to prepare before tax season gets into full swing.
