Are You Making These 3 Common Required Minimum Distribution (RMD) Mistakes?

Many Americans prioritize socking away money for retirement while they’re working. After they retire, though, the focus shifts to using the cash from their tax-advantaged accounts most effectively.

That’s where required minimum distributions (RMDs) come into play. RMDs are mandatory annual withdrawals from tax-deferred retirement accounts that kick in once you reach the required age (which depends on when you were born).

Unfortunately, the rules surrounding RMDs aren’t always easy to understand. Are you making these three common RMD mistakes?

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1. Double trouble

You don’t have to take your first RMD in the year you reach the required age. The IRS allows you to hold off until April 1 of the next year. For example, suppose you were born in 1953. You’ll reach your required age for RMDs of 73 in 2026. You can take your first RMD at any time through April 1, 2027.

However, there’s a potential issue if you wait until early next 2027. You will have to take the delayed RMD for 2026 and the regular RMD for 2027 in the same year. This could push you into a higher tax bracket.

2. A limited exception

Some people enjoy their jobs so much that they continue working well past the age at which most Americans retire. If you’re still employed after your required age for taking RMDs, you may be able to delay RMDs from your current employer’s 401(k) or 403(b) plan.

The mistake to avoid, though, is understanding that this is a limited exception. The IRS won’t allow you to delay RMDs from traditional IRAs or 401(k)s from your previous employers. One other thing to know: If you own 5% or more of the company you currently work for, you can’t delay RMDs from the company’s 401(k) plan.

3. A charitable error

Suppose you want to give some money to a charitable organization. You could take your RMD, deposit it into your bank account, and then write a check to the charity. But you shouldn’t take this approach. Why? There’s a smarter way to donate.

What you can do instead is use a Qualified Charitable Distribution (QCD). It allows you to transfer up to $111,000 directly from an IRA to a charitable organization. The amount of your contribution counts toward your RMD. Even better, though, the amount isn’t included in your Adjusted Gross Income (AGI). As a result, your taxable income is lower than it would have been if you had taken the RMD and then donated to charity.