The nice thing about saving for retirement in a traditional IRA or 401(k) is getting to make contributions with pre-tax dollars. That could help shield a nice amount of your income from taxes during your working years.
But there's a big drawback to saving for retirement in a traditional IRA or 401(k). These accounts force you to take required minimum distributions (RMDs) once you reach a certain age. That age is 73, or 75 if you were born in 1960 or later.
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It's important to understand the rules of RMDs so you don't make a mistake you end up regretting. Here are four such blunders to avoid at all costs in 2026.
1. Missing the deadline
Your first RMD is due by April 1 of the year after you turn 73 or 75, depending on your year of birth. But don't get confused and think you can put off all RMDs to the following April.
Once you're on your second RMD and beyond, the deadline to take those distributions is Dec. 31. It's important to stick to that deadline to avoid a whopping 25% penalty on any amount you fail to withdraw.
Also keep in mind that if you're turning 73 this year and will be on the hook for your first RMD, pushing it to next April will mean having to take two mandatory withdrawals in 2027. That could lead to a large tax bill. So you may not want to defer that initial RMD unless you have a good reason to.
2. Assuming you don't have to take any RMDs because you're still working
There's one way you can get out of taking RMDs if you're old enough to be forced into them. If you're still working, you don't have to take an RMD from the workplace retirement plan sponsored by your current employer. You can delay your RMD provided you don't own more than 5% of the company.
However, this exception does not apply to IRAs you have or 401(k)s from previous employers. It only applies to the 401(k) offered by the company you're still working for.
3. Taking withdrawals without a tax strategy
It's not always possible to get out of taking RMDs. But you should know that because they trigger a tax bill, they can have unforeseen consequences.
Having to take an RMD this year, for example, could make it so you're subject to future surcharges on your Medicare premiums known as income-related monthly adjustment amounts. You could also be pushed into a bracket where you have to pay taxes on your Social Security benefits.
Rather than just take your RMD, sit down with a professional and come up with a strategy to minimize the tax hit as best as possible. One option may be to do qualified charitable distributions (QCDs), where you donate your RMD to charity directly.
4. Spending the money instead of saving it
You may be resigned to having to take your RMD this year and making the most of that money. But you should know that you're not required to spend your RMD.
You can't put your RMD back into another tax-advantaged retirement plan. But you can invest it in a taxable brokerage account, use it to build a CD ladder, or put it to work in some other fashion.
In other words, don't just spend your RMD on something meaningless because you were forced to remove that money from your IRA or 401(k). There's no reason not to let it continue growing.
RMD mistakes can be costly in different ways. Now that you're aware of these common mistakes, you can take steps to avoid them this year.
