For recent retirees, required minimum distributions (RMDs) become a way of life at age 73 (75 if you were born in 1960 or later). RMDs are the government's way of ensuring it collects taxes on money you've invested in pre-tax retirement accounts as you tucked money away for your golden years.
So, if you have assets in a traditional, SEP, or SIMPLE IRA, or in an employer-sponsored plan like a 401(k), 403(b), or 457(b), RMD rules apply to you. Given the millions of Americans who must adhere to these rules, it's no surprise that sometimes they make mistakes. Here are some of the most common.
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1. Missing the deadline
If you're busy living your best life and forget to take your RMD, or otherwise miss an deadline, the amount not withdrawn may be subject to a 25% penalty. For example, if you were supposed to withdraw $10,000, the penalty could be as much as $2,500. However, the IRS will drop the penalty to 10% if you correct the issue within two years.
Your best bet may be to mark your calendar to make withdrawals before the due date arrives. You can also automate withdrawals, so you don't have to worry about missing a red-letter date. Many brokerages offer an automatic transfer service that calculates the correct amount and withdraws it on the date (or dates) you choose.
2. Withdrawing too little
Many retirees say they're busier in retirement than they were when they were working. It could be because they never had the time to pursue their interests while working, and now that they do, they're taking advantage of it.
In any case, as life speeds by, it's easy to let little things -- like a miscalculated RMD -- slip through the cracks. Let's say you have a traditional IRA and were required to withdraw $10,000. Somehow, your math was off, and you withdrew $9,000 instead. The same 25% excise tax that applies to missed deadlines applies here.
Note: While most brokerages and plan administrators will calculate your RMD for you, it's still up to you to double-check the math to ensure it's correct.
3. Rolling over an RMD
The rules surrounding rollovers can seem a bit tricky, but they don't have to be. Here's what you need to remember: While you can roll one type of retirement account over to another, you can't roll over an RMD. The following scenario should help explain how it works:
Chris is 74 and has an $800,000 401(k) balance they've been considering rolling into an IRA. Their RMD for the year is $30,000. Rather than roll the entire $800,000 into an IRA, Chris must first withdraw the required $30,000 so the government can capture the taxes on those funds. The remaining $770,000 is theirs to do with as they please.
4. Combining your RMD with your spouse's
If you're married and your financial relationship involves pooling all your money, it might seem as though you can combine your RMDs. However, that's not the case. Imagine that you are the same age as your spouse, and you have the same amount in your 401(k)s. You're each required to take an RMD of $25,000.
You can't withdraw $50,000 and call it a day since you're a couple. You must calculate your own RMDs and withdraw the required amount from the correct account.
5. Taking credit for last year's excess RMD
Let's say your RMD for last year was $20,000, but you withdrew an extra $20,000 to complete a home renovation project. The extra money you took last year has nothing to do with this year's RMD and can't be counted toward it.
6. Believing your annual QCD is limited by your RMD amount
If your plans for this year's RMD include making a qualified charitable distribution (QCD) -- a move that allows you to cover your RMD and pay no taxes on the amount donated -- your RMD does not impact the amount you're eligible to donate.
For 2025, the amount you can donate per individual is $108,000 ($216,000 for a married couple). Even if your RMD is much less than that amount, you can still take advantage of the full QCD.
Retirement is supposed to be a time of relaxation, enjoyment, and leisure. There's no reason to allow RMD rules to get in your way.
