Common RMD Mistakes Retirees Should Avoid (And How to Fix Them)

For retirees—or those approaching retirement—understanding Required Minimum Distributions (RMDs) is essential. These mandatory withdrawals, which typically begin at age 73, must be taken from retirement accounts such as IRAs and 401(k)s. Mismanaging them can lead to steep penalties and unnecessary tax burdens.

As Alonso Rodriguez Segarra, THE PALM BEACH FINANCIAL PLANNER, I’ve seen how even well-prepared retirees can make simple but costly RMD mistakes. Here are some of the most common missteps, along with practical ways to correct them.

1. Failing to Take the RMD on Time

This is arguably the most common mistake. If you miss your first RMD deadline, the IRS can impose a penalty of 25% of the amount not withdrawn—a significant hit to your retirement savings.

If you’ve missed a deadline, act quickly. The IRS may reduce or waive the penalty if you correct the error promptly and file Form 5329 along with a letter of explanation. To avoid this altogether, set up automatic distributions or work with a financial planner to monitor your RMD schedule.

2. Miscalculating the RMD Amount

Your RMD is calculated based on the value of your account as of December 31 of the previous year, divided by a life expectancy factor set by the IRS. Errors often occur when using the wrong life expectancy table or account balance.

Use the correct IRS life expectancy table for your situation and verify the year-end account balance. Online calculators or the guidance of a financial advisor can help ensure accurate calculations.

3. Overlooking Multiple Retirement Accounts

Many retirees hold several IRAs or 401(k)s. While traditional IRA RMDs can be aggregated and taken from one account, 401(k) RMDs must be taken separately from each plan. Mixing these rules can result in compliance issues.

Review each retirement account type carefully. You can simplify by consolidating IRAs when possible. For 401(k)s, calculate and withdraw each RMD independently to stay compliant.

4. Trying to Reinvest RMDs into a Retirement Account

Once withdrawn, RMDs cannot be redeposited into an IRA as a contribution. Some retirees attempt this in hopes of continuing tax-deferred growth, but this violates IRS rules and may incur penalties.

Instead of trying to put RMDs back into a retirement account, consider investing the funds in a taxable brokerage account. If you don’t need the income, a Qualified Charitable Distribution (QCD) lets you donate up to $100,000 directly to charity, reducing your taxable income.

5. Ignoring the Tax Consequences

RMDs are taxed as ordinary income. Without proper planning, they can push you into a higher tax bracket, increase your Medicare premiums, or reduce eligibility for income-based programs.

How to fix it:
Use tax-efficient strategies like Roth conversions before age 73, gradually drawing down tax-deferred accounts early, or leveraging QCDs if you’re charitably inclined. A year-by-year RMD strategy can help minimize the long-term tax impact.

Conclusion

RMDs are a legal requirement—but they’re also an opportunity to refine your retirement strategy. Avoiding common errors and planning proactively can save you money, reduce stress, and keep you in the IRS’s good graces. If you’re unsure whether you’re handling your RMDs correctly, you’re not alone—most mistakes can be avoided with proper guidance.