RMDs Can Drain Retirement Savings, But These 7 Mistakes Let the IRS Take More Than It Should

Retirees who reach the age of 73 must begin taking annual required minimum distributions (RMDs) from tax-deferred accounts such as traditional 401(k) plans and IRAs.

Being forced to withdraw money and pay taxes on it is bad enough. But the following mistakes could make the problem even worse.

Here are some ways you could potentially jeopardize your financial fitness by accidentally and needlessly allowing the IRS to get more of your money than it should.

Missing the Dec. 31 deadline

Most retirees must take their annual RMD no later than Dec. 31. Failing to do this will result in penalties from the federal government.

The IRS can hit you with a 25% tax penalty for failing to take your RMD on time. This is in addition to any income taxes you will owe on the withdrawal.

You may be able to reduce the penalty to 10% or even get it eliminated if you promptly fix your mistake.

Failing to account for all accounts

Many people have more than one traditional IRA or 401(k). When you take an RMD, you must calculate the amount for each IRA that you own.

If you fail to do this with each account, you could end up taking an RMD that is too small.

Once you have performed this calculation, it is OK to withdraw the amount you owe from a single IRA, according to the IRS.

However, this is not the case with multiple 401(k) accounts and similar plans. In those instances, you must take RMDs from each account.

Taking your first RMD at the wrong time

When you take your first RMD at age 73, the IRS offers you a special one-time option of delaying the initial withdrawal until April 1 of the year after you turn that age.

While this sounds great, it also creates the possibility of taking both your first and second RMDs in a single year. That can boost your income for the year, possibly pushing you into a higher tax bracket and even increasing your Medicare premiums.

If you are unsure of when to take your first RMD, consult with a tax professional.

Ignoring the IRMAA effect

Make no mistake — having a lot of money in traditional IRA and 401(k) plans is a good thing. But it comes with a downside.

The larger these accounts are, the more you will have to withdraw in RMDs in a given year. This could push your income higher.

In some cases, your income could become so large that you will exceed Medicare's income threshold, causing Part B and D premiums to jump by up to hundreds of dollars monthly.

In some cases, you can avoid this fate simply by making withdrawals from Roth IRA accounts that will not be counted as income.

Using the wrong IRS life expectancy table

The IRS has three life expectancy tables that retirees use to determine their RMD amount:

• Single life
• Uniform lifetime
• Joint life

Most retirees should use the uniform lifetime table, but that is not true of everyone. Pick the wrong table, and you can screw up your RMD calculation, potentially withdrawing too much or not enough.

Overlooking the qualified charitable distribution option

Once you turn 70 1/2, the IRS allows you to make up to $111,000 in annual distributions directly from an IRA to one or multiple charities. When you do this, you satisfy the RMD without the amount adding to your taxable income.

Both members of a married couple have this option, bringing the total up to $222,000. These numbers are valid as of 2026, but may be updated each year. 

Not planning ahead for inherited IRA rules

Many of us want to leave behind a financial legacy for our loved ones. But you can help your heirs hold on to more of their cash by making sure they understand the rules that apply to inherited IRA accounts.

Thanks to new rules that were finalized in 2024, most non-spouse beneficiaries must drain an inherited IRA account within 10 years. Those who plan well and make such withdrawals gradually can often reduce their tax bill.

This is an area where working with a financial advisor or tax professional can make a big difference.

Get help before making RMD decisions

As you can see, the wrong RMD decisions can have a big impact on how much money will remain in your nest egg during retirement.

Most of these mistakes are preventable with simple steps, such as creating calendar reminders to pay your RMD and talking with a financial professional about the best RMD strategy.

Bottom line

For millions of retirees, RMDs are an unavoidable and unpleasant fact of life. But a little planning can go a long way toward reducing the financial pain associated with these withdrawals.

From your working years right through retirement, crafting the right financial strategies can help you keep more of what you earn as the years roll on.

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