If you’re a retiree, you likely know about (and are hopefully very familiar with) Required Minimum Distributions (RMDs). The IRS generally requires annual RMDs beginning at age 73 for many retirement accounts, with most distributions due by Dec. 31 after the first RMD year. These withdrawals from your retirement accounts not only impact your immediate finances, but they can also affect your taxes, Medicare premiums, Social Security, and even your overall retirement plan. Unfortunately, many retirees wait until the very last minute to take their distribution or miss opportunities to reduce the tax impact of those withdrawals. You must take action before December 31, or you could face hefty penalties. But before you start making any moves, make sure you’re not making any of these common RMD mistakes.
1. Waiting Until the Last Week of December to Take Your RMD
Imagine scheduling your withdrawal on December 30 only to discover your brokerage requires several business days to process the request. Between holiday closures and higher year-end transaction volumes, waiting until the last week can create unnecessary stress, even if you’ve taken RMDs for years.
If the withdrawal isn’t completed by the deadline, you could face an excise tax on the amount that should have been withdrawn, although the IRS may reduce the penalty if the mistake is corrected promptly. Scheduling your withdrawal well before December gives you time to verify that the correct amount has been distributed.
An important note: After your first RMD year, annual withdrawals generally must be taken by December 31.
2. Assuming the Financial Institution Calculates Everything Automatically
Some custodians calculate RMD amounts and even offer automatic distributions, but not every retirement account works the same way. If you have multiple IRAs or several old workplace retirement plans, the responsibility for ensuring the correct total withdrawal ultimately falls on you. It’s worth reviewing your year-end account balances and confirming how each RMD was calculated. A quick phone call now can prevent an expensive correction later. Never assume that “automatic” means every account has been handled correctly.
3. Forgetting How RMDs Can Affect Your Taxes
One of the biggest RMD planning mistakes is focusing only on the withdrawal itself instead of its tax consequences. RMDs are generally taxed as ordinary income and can increase your taxable income for the year. That additional income may also affect how much of your Social Security benefits are taxable or even increase future Medicare Part B and Part D premiums through Income-Related Monthly Adjustment Amounts (IRMAA).
An additional $15,000 RMD could do more than increase your federal income tax bill. For some retirees, it may push income high enough to increase Medicare Part B and Part D premiums two years later or cause more of their Social Security benefits to become taxable. Before taking a large year-end distribution, ask whether federal or state tax withholding makes sense.
4. Overlooking Qualified Charitable Distributions
If you’re charitably inclined, your RMD doesn’t always have to increase your taxable income. Eligible IRA owners can often use a Qualified Charitable Distribution (QCD) to send money directly from their IRA to a qualified charity, subject to IRS rules and annual limits. For retirees who already give regularly, this strategy can satisfy part or all of an RMD while reducing taxable income. However, the rules are specific, so the distribution must be completed correctly to qualify.
For example, someone who normally gives $5,000 each year to their church or favorite nonprofit may be able to send those funds directly from an IRA instead of withdrawing the money first and writing a personal check. Done correctly, that distribution may satisfy part of the Required Minimum Distribution while keeping that amount out of taxable income. QCDs are available to eligible IRA owners age 70½ or older, subject to annual IRS limits and other rules.
5. Not Reviewing Beneficiary Information
Although beneficiary designations don’t affect this year’s RMD amount, they’re an important part of year-end retirement planning. Outdated beneficiaries can create complications for heirs and may affect how inherited retirement accounts are distributed. Life events like marriage, divorce, or the death of a spouse are all reasons to review your paperwork before the year closes. Updating beneficiary forms is often quick but easily forgotten amid holiday activities.
6. Missing the Opportunity to Plan for Next Year’s RMD
The smartest retirees don’t stop planning once this year’s withdrawal is complete. Reviewing your expected income for next year may reveal opportunities to spread withdrawals, consider Roth conversions before future RMDs grow larger, or coordinate distributions with other retirement income. These conversations are often more productive before the calendar turns because you still have flexibility to adjust your overall tax strategy.
Your RMD Mistakes Have Consequences
Common Mistake
Possible Consequence
Waiting until late December
Missed deadline or processing delays
Ignoring tax withholding
Larger tax bill in April
Skipping QCD planning
Higher taxable income
Forgetting IRMAA
Higher Medicare premiums
Assuming every account is automatic
Incorrect RMD amount
Don’t Let a Required Withdrawal Become an Expensive Surprise
Required Minimum Distributions are one of the few retirement rules that come with a firm deadline, but they’re also an opportunity to review your entire retirement income strategy before the year ends. Taking a little time now to confirm your withdrawal amount, understand the tax impact, and explore options like Qualified Charitable Distributions may help you keep more of your retirement savings working for you. Because every retiree’s situation is different, it’s worth reviewing your plan with a qualified tax professional or financial advisor before making year-end decisions. A one-hour conversation today could help prevent tax surprises that linger well into next year.
Have you already taken your RMD this year, or are you still planning your year-end retirement withdrawals? Share your experience or questions in the comments below.
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