6 Critical Retirement Account Mistakes to Avoid With Required Minimum Distributions

For retirees managing pre-tax retirement accounts, understanding Required Minimum Distribution (RMD) rules is essential. Starting at age 73 (or 75 if born in 1960 or later), the IRS requires withdrawals from traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer-sponsored plans like 401(k)s, 403(b)s, and 457(b)s. One common question that arises: does a Roth conversion count as an RMD? The answer is no—Roth conversions are separate transactions and do not satisfy your RMD requirements. Understanding this distinction is crucial to avoid costly penalties.

Missing Your RMD Deadline

Overlooking your withdrawal deadline carries serious consequences. Failing to withdraw your required amount can trigger a 25% excise tax on the shortfall. For instance, if you owed a $10,000 withdrawal but missed it entirely, you could face a $2,500 penalty. The IRS offers some relief: if you correct the error within two years, the penalty drops to 10%.

The simplest solution is automation. Set calendar reminders or use your brokerage’s automatic transfer service, which calculates your exact withdrawal amount and processes it on your chosen dates.

Underpaying Your Required Amount

Life’s demands often make retirees busier in retirement than during their working years. In the rush, RMD calculations sometimes get overlooked. Suppose your traditional IRA requires a $10,000 withdrawal, but due to miscalculation, you only withdraw $9,000. The shortfall—$1,000—faces the same 25% penalty, costing you $250.

While brokerages and plan administrators typically calculate RMDs automatically, always verify their math. A simple double-check prevents expensive mistakes.

Treating a Rollover as Your RMD

You can roll funds between retirement account types, but not your RMD. Here’s the critical distinction: an RMD must be withdrawn and taxed before any remaining balance can be rolled over. Consider Chris, age 74, with an $800,000 401(k) and a $30,000 RMD. Before rolling the account to an IRA, Chris must first withdraw that $30,000. Only the remaining $770,000 is eligible for rollover.

This rule applies regardless of your account type or rollover destination.

Combining Spouse RMDs Into One Withdrawal

Married couples with separate retirement accounts face a temptation: combine both RMDs into a single withdrawal. This violates IRS rules. If you and your spouse each have a $25,000 RMD, you cannot withdraw $50,000 from one account and call it settled. Each person must calculate their individual RMD and withdraw from their own account. The IRS tracks this at the account level, not the household level.

Counting Prior-Year Excess Withdrawals

Extra withdrawals from previous years provide no credit toward current RMDs. If last year you withdrew $20,000 more than required for a home renovation, that surplus does not reduce this year’s RMD obligation. Each year’s requirement stands independently.

Underestimating Your Qualified Charitable Distribution Eligibility

Your RMD amount does not cap your qualified charitable distribution (QCD) potential. A QCD allows direct transfers from your IRA to charity, satisfying your RMD tax-free. For 2025, individuals can donate up to $108,000 annually through QCDs, while married couples can donate up to $216,000. Even if your RMD is substantially smaller—say, $30,000—you retain full QCD eligibility. Your RMD is a floor, not a ceiling, for charitable giving.

Final Takeaway

Understanding RMD mechanics protects your retirement income and prevents unnecessary tax consequences. Whether managing separate accounts, planning rollovers, or exploring charitable giving strategies, precision matters. By avoiding these six common pitfalls, you can navigate required minimum distributions with confidence and keep more of your hard-earned retirement savings.