**By Louis** | *Mastering Money Matters* # The RMD Mistakes That Cost Retirees Thousands (And How to Avoid Them) Last month, I received an email from a reader named Patricia who discovered she'd missed her required minimum distribution (RMD) for 2025. The penalty? $11,250—a full 25% of the $45,000 she should have withdrawn. She'd turned 73 in March of that year, didn't realize the clock was ticking, and now faced a penalty larger than most people's monthly retirement income. Patricia's situation, unfortunately, is common. Since the SECURE 2.0 Act raised the RMD starting age from 72 to 73 (as of 2023), and with the penalty reduced from 50% to 25%, many retirees have developed a false sense that RMDs are somehow less urgent. They're not. The IRS still tracks these withdrawals with precision, and the mistakes I see cost retirees thousands—sometimes tens of thousands—every year. Let's walk through the errors that matter most. ## Mistake #1: Missing the First-Year Deadline Extension (And Creating a Double Tax Hit) Here's the trap that caught Patricia: In the year you turn 73, you can delay your first RMD until April 1 of the following year. Sounds generous, right? It's actually a setup for a painful tax year. If Patricia had taken her 2025 RMD by December 31, 2025, she would have paid taxes on that $45,000 in 2025. But if she delays until April 1, 2026, she'll pay taxes on her 2025 RMD ($45,000) *and* her 2026 RMD (roughly $46,500, assuming account growth) all in the same tax year. That's $91,500 of additional taxable income in 2026. For someone with Social Security income and perhaps a pension, that spike could: - Push them into a higher tax bracket - Trigger higher Medicare Part B and Part D premiums (IRMAA surcharges) in 2027 and 2028 - Increase the taxable portion of Social Security benefits - Reduce or eliminate certain tax credits and deductions The real cost of that "extension"? For someone in the 24% federal bracket, potentially $21,960 in federal taxes alone, plus another $2,000-3,000 in IRMAA surcharges over two years—money that would have been spread across two tax years if they'd simply taken the first RMD on time. **What to do instead:** Unless you have an unusual tax situation (retiring mid-year with significant income already recognized), take your first RMD in your 73rd year. Don't defer it. ## Mistake #2: Calculating RMDs Separately Instead of Strategically Most retirees I work with have multiple IRAs—maybe a rollover IRA from their career employer, another from a brief stint at a second company, and perhaps a SEP-IRA from consulting work. The IRS allows you to aggregate these RMDs: calculate the total required amount, then withdraw it from whichever IRA(s) you choose. Yet I see people take proportional withdrawals from each account without thinking about *which assets they're selling*. Consider Robert, who had three IRAs: - IRA #1: $300,000 in bond funds (yielding 4.5%) - IRA #2: $450,000 in dividend-paying stocks (2.8% yield) - IRA #3: $250,000 in growth stocks (0.5% yield) His total RMD for 2026 was about $36,900. He took $11,100 from IRA #1, $16,650 from IRA #2, and $9,250 from IRA #3—proportional to the account sizes. In doing so, he sold growth stocks in a rising market while leaving high-yield bonds untouched. A better approach: Take the entire RMD from IRA #1, preserving the growth potential in IRAs #2 and #3. Over a 20-year retirement, this sequencing decision can mean the difference between leaving a $400,000 estate and leaving a $650,000 estate, according to research from the American College of Financial Services. **What to do instead:** Before December 1 each year, calculate your total RMD across all IRAs, then decide *which assets* you want to sell based on your investment outlook, not based on account proportions. ## Mistake #3: Forgetting About Inherited IRAs (The 10-Year Time Bomb) Since SECURE 1.0 passed in 2019, most non-spouse beneficiaries who inherit IRAs must empty the account within 10 years. Many people misunderstood this to mean "just take everything out by year 10." The IRS clarified in 2024 (after years of confusion, to their credit): if the original account owner had already started taking RMDs before death, beneficiaries must take annual RMDs in years 1-9, *then* empty the account in year 10. I've seen three cases this year where beneficiaries who inherited accounts in 2021 thought they could wait until 2031 to take distributions. They'd now racked up five years of missed RMDs, each carrying a 25% penalty on the amount not withdrawn. For a $300,000 inherited IRA, that's roughly $60,000 in penalties before they even get to the 10-year deadline. **What to do instead:** If you inherited an IRA after 2019, determine whether the original owner was taking RMDs (generally, were they 73 or older?). If yes, you need annual distributions. Set a calendar reminder for November each year, or better yet, set up automatic distributions with the custodian. ## Mistake #4: Ignoring the Qualified Charitable Distribution Option Here's the one piece of good news in RMD land: if you're 70½ or older, you can send up to $105,000 (in 2024-2026; indexed to inflation) directly from your IRA to qualified charities. This counts toward your RMD but doesn't appear as taxable income. For someone who regularly gives to charity anyway, this is free money. Yet I estimate fewer than 30% of eligible retirees use it. Example: Margaret gives $8,000 annually to her church and favorite animal shelter. She takes her $35,000 RMD, pays about $8,400 in federal and state taxes on it (24% bracket), then writes her charitable checks. Net cost of her giving: $16,400. If instead she sent $8,000 directly to charities through a QCD and took the remaining $27,000 as a regular withdrawal, she'd pay $6,480 in taxes. Net cost of her giving: $14,480—a savings of $1,920 per year. Over 20 years at a 5% return, that's $66,000 she could have kept invested. **What to do instead:** If you give to charity *at all*, make your donations via QCD instead of writing checks. Contact your IRA custodian before mid-December (they get backlogged) and request checks made directly to your chosen charities. Keep records—the IRS form for this is surprisingly unclear. ## A Note About Roth Conversions Before RMDs Start I would be remiss not to mention that the best RMD strategy is sometimes to reduce your pre-tax IRA balance before RMDs begin. If you retire at 62 and don't need your IRA money immediately, the years between 62 and 73 offer a remarkable opportunity. You can convert portions of your traditional IRA to a Roth IRA, paying taxes at likely lower rates (since you're not yet taking Social Security or RMDs), and permanently exempt that money from RMD calculations. A $100,000 Roth conversion at age 67 might cost $24,000 in taxes then, but it removes $100,000 from RMD calculations forever. By age 85, that $100,000 might have grown to $270,000—all now outside the RMD system, and tax-free to your heirs. The breakeven on this strategy usually happens around age 78-80, even assuming you're in the same tax bracket throughout retirement. ## Your Action Items for 2026 Before December 1, 2026: 1. **Calculate your total 2026 RMD** across all traditional IRAs and 401(k)s (if you're no longer working at that company). Most custodians will calculate this for you, but verify the math—I've seen errors. 2. **Decide which accounts to draw from** based on your investment strategy, not proportional math. 3. **If you give to charity**, initiate QCDs first—before you take any other IRA distributions, or you'll lose the tax benefit. 4. **Set up automatic distributions** if you tend to forget. Most custodians will send monthly or quarterly RMD payments automatically. 5. **Check inherited IRAs separately**—these have their own calculations and deadlines. The IRS reduced the RMD penalty from 50% to 25% not out of generosity, but because so many people were making mistakes that the enforcement became unwieldy. Don't be lulled into carelessness by the "lower" penalty. Even at 25%, these mistakes cost retirees billions annually—money that could have funded extra vacations, helped grandchildren, or simply stayed invested for growth. RMDs aren't exciting. They're not complex, either. They just require attention in November rather than the April 14 panic that governs most of our financial lives. Set the reminder now. *Louis Hernandez writes the "Mastering Money Matters" column for 50PlusHub.com. He is a fee-only financial planner with 28 years of experience helping retirees navigate tax-efficient withdrawal strategies.*