10 RMD Rules People Constantly Mix Up (and Pay For Later)

Required Minimum Distributions (RMDs) might sound like a routine part of retirement planning, but they're anything but simple. The IRS rules are layered with exceptions, deadlines, and technical details that trip up even seasoned investors.

Getting them wrong could mean penalties, higher taxes, and wasted retirement savings. Here's how to avoid wasting your retirement savings by steering clear of the most common RMD mistakes.

One of the most frequent mistakes is misremembering the age when RMDs must start. The age threshold has shifted multiple times in recent years: First from 70½, then to 72, and now to 73 for those born between 1951 and 1959. For anyone born in 1960 or later, it will rise to 75. Missing that shift could easily trigger penalties.

If you own several traditional IRAs, you're allowed to calculate the RMD from each account and then take the combined total from just one. But that flexibility doesn't apply to 401(k)s. Each employer-sponsored account requires its own separate withdrawal.

Mixing up those aggregation rules could leave one account short, opening the door to IRS penalties of up to 25% of the missed amount.

Inherited IRAs operate under an entirely different set of rules. Many non-spouse beneficiaries must empty the account within 10 years, thanks to the SECURE Act. Others might need annual distributions during that period. The rules differ if you're a spouse, minor child, disabled individual, or less than 10 years younger than the original owner. Missteps here could accelerate taxable income and shrink long-term growth.

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The first year you owe an RMD comes with a tricky timing choice. You can delay that first withdrawal until April 1 of the following year. But delaying means you'll take two RMDs in the same tax year, potentially pushing you into a higher tax bracket.

Many retirees overlook this and create a larger-than-expected tax bill.

Not every retirement account requires RMDs. Traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer plans do. Roth IRAs, on the other hand, do not have RMDs during the account owner's lifetime.

Mixing this up can cause either missed distributions or unnecessary withdrawals that shrink tax-free growth.

Spouses have unique options when inheriting an IRA. They can roll the account into their own IRA, remain a beneficiary, or even delay distributions until the deceased spouse would have turned 73.

Choosing the wrong option could lead to larger mandatory withdrawals and more taxes than necessary. Professional guidance is often worth it here.

Qualified charitable distributions (QCDs) allow those 70½ and older to give up to $100,000 per year directly to a qualified charity. That amount counts toward your RMD while also excluding the distribution from taxable income.

Many retirees overlook this and instead donate cash separately, missing out on a powerful tax-saving strategy.

The IRS penalty for missed or insufficient RMDs is 25%, although it could be 10% if corrected quickly. Still, on a $30,000 required distribution, that could mean $7,500 in penalties. Money that could have stayed in your pocket with a little planning.

It's common for retirees to leave money in a former employer's 401(k). What many don't realize is that the RMD calculation rules for employer plans aren't always the same as IRAs. For instance, if you're still working and not a 5% owner of the company, you might be able to delay RMDs from that employer's plan.

Retirees who assume all accounts work the same way could accidentally take too much or too little.

When minors inherit retirement accounts, their timeline works differently than adults. They can delay full distributions until they reach age 21, but then the 10-year clock starts ticking. Many families overlook this detail, and years later, the now-adult child faces large taxable withdrawals all at once.

That surprise can drain the account faster than intended and saddle the beneficiary with a heavy tax bill.

RMDs are easy to overlook, but the consequences aren't small. Missteps around timing or inheritance could result in thousands of dollars in penalties and extra taxes — money that would be better used to support your retirement plan.

RMD amounts are based on your account balance at the end of the prior year, which means a strong stock market in December could raise your next year's withdrawal requirement. Planning for retirement means watching both the calendar and the markets to stay ahead.