Here are some of the biggest required minimum distribution mistakes
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As December approaches, some older Americans will soon need to make necessary withdrawals from their retirement accounts, and mistakes could be costly, according to financial experts.
Most retirees need to start at age 73 required minimum distributionsor RMDs from pre-tax accounts, depending on your balance, age, and IRS”life expectancy factor”
Your first RMD must be paid by April 1 of the year after you turn 73, and December 31 is the deadline for future withdrawals. Waiting until April 1 after you turn 73 means you’ll need two RMDs that year.
Millions of retirees will have to comply with complex RMD rules or potentially IRS penalty. Experts say the requirements can be difficult to follow due to changing legislation and IRS guidance.
“RMD errors are rarely the result of negligence. They arise from complexity,” said certified financial planner Scott Van Den Berg, president of consulting firm Century Management in Austin. “People don’t realize how many accounts they have, what they’re responsible for, or how quickly the rules change.”
If you do not receive your full RMD by the maturity date, the penalty is 25% of the amount you must withdraw. However, that rate can be reduced to 10% if the RMD is “timely adjusted” within two years, according to the IRS.
Here are some of the biggest RMD mistakes and how to avoid them.
One of the ‘biggest mistakes’ is waiting
While the RMD deadline for most retirees is Dec. 31, many investors don’t start the process early enough, according to Tom Geoghegan, CFP, founder of Beacon Hill Private Wealth in Summit, New Jersey.
“One of the biggest RMD mistakes is waiting until December to get everything sorted,” he said. “When retirees rush, they are more likely to miscalculate” [RMD] amount, you could sell the wrong assets or miss the deadline altogether,” he said.
Geoghegan said that by starting early, there will be more time to calculate the RMD, verify beneficiary details and verify the year-end balance needed to choose the best way to withdraw cash from the portfolio.
Hijacked accounts
When calculating RMDs, you need to consider the requirements of each and count each RMD toward your final number.
But one of the biggest mistakes is skipping accounts, like an old 401(k), a forgotten rollover, or a new account. Van Den Berg of Century Management said he inherited the private retirement account from years ago.
But you can avoid this mistake by creating a “master list” of your accounts each January, including which company holds the assets and the RMD requirements for each, he said.
‘Largely used’ charitable distributions
If you donate money to charity, you can use the so-called. Qualified charitable distributions, or QCDs, which are direct transfers from an IRA to an eligible nonprofit organization to reduce RMDs.
According to Beacon Hill Private Wealth’s Geoghegan, this move is “underutilized” and could offset your annual RMD.
Once you’re age 70½ or older, you can donate up to $108,000 in 2025 using QCDs. For married couples filing jointly, spouses age 70½ or older can also contribute up to $108,000 through 2025. $108,000 from their IRA.
Another benefit of QCDs is that the strategy “keeps income off the tax return, which helps with Medicare surcharges,” Geoghegan said.
