If you've spent decades building your retirement nest egg, there's one rule you absolutely cannot afford to mess up: Required Minimum Distributions, or RMDs.
Picture this: You turn 73, and suddenly the IRS taps you on the shoulder and says, "Time to start taking money out of your IRA... and we're going to tax it. Whether you need it or not."
I've seen clients lose thousands of dollars—not from bad investments or market crashes—but from simple RMD mistakes. Missing a deadline. Forgetting about an old 401(k). Not understanding the aggregation rules.
Today, I'm going to walk you through everything you need to know about RMDs: what they are, when you must take them, how to calculate them, and the seven most common mistakes that can trigger a 25% penalty.
Let's dive in.
What Are Required Minimum Distributions (RMDs)?
A Required Minimum Distribution is exactly what it sounds like: a mandatory withdrawal from your tax-deferred retirement accounts once you reach a certain age.
The government gave you a tax deduction when you contributed to your traditional IRA or 401(k). Your money grew tax-deferred for decades. Now, the IRS wants their cut.
Which Accounts Require RMDs?
RMDs apply to most tax-deferred retirement accounts, including:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- 457(b) plans
- Other defined contribution plans
Which Accounts Don't Require RMDs?
There are two important exceptions:
- Roth IRAs – No RMDs required during your lifetime
- Roth 401(k)s and Roth 403(b)s – As of 2024, these no longer require RMDs either
This is one of the biggest advantages of Roth accounts and why Roth conversions can be such a powerful strategy. (We covered this in detail in our Roth Conversion Masterclass – highly recommend checking it out.)
When Do RMDs Start? Understanding the Age Rules
Currently, you must begin taking RMDs at age 73.
Now, this rule has changed recently due to the SECURE 2.0 Act, so pay attention:
- If you turned 72 before January 1, 2023, you're already taking RMDs
- If you turn 72 in 2023 or later, you start at age 73
- Starting in 2033, the RMD age will increase to 75
For most people reading this: Age 73 is your starting point.
The December 31st Birthday Rule
Here's a question I get all the time: "What if I turn 73 on December 31st? Do I still have to take an RMD that year?"
Yes, absolutely. The IRS considers you to be age 73 for the entire year, even if your birthday falls on the last day of the year. You'll owe the full annual RMD based on your account balance as of the previous December 31st.
Critical RMD Timing Rules (Don't Fall Into This Trap!)
The April 1st Exception – And Why It's Usually a Mistake
For your very first RMD, you have two options:
- Take it by December 31 of the year you turn 73
- Delay it until April 1 of the following year
Sounds nice, right? A few extra months to figure things out.
But here's the trap: If you delay your first RMD, you'll have TWO RMDs in one calendar year.
Let me show you how this plays out:
Example:
- You turn 73 in June 2025
- You decide to wait and take your first RMD in March 2026 (before the April 1 deadline)
- But you ALSO must take your 2026 RMD by December 31, 2026
- That's TWO full RMDs in the 2026 calendar year
Why Two RMDs in One Year Is Bad
Taking two RMDs in one year means:
- Higher taxable income – You could jump into a higher tax bracket
- Medicare IRMAA surcharges – Your Medicare premiums could increase significantly
- More Social Security taxation – Up to 85% of your benefits could become taxable
- Lost tax planning opportunities – You've compressed income that could have been spread over two years
My recommendation: Unless you have a very specific reason (like you retired mid-year and want to defer income), take your first RMD in the year you turn 73. Don't delay it.
Ongoing RMD Deadlines
After your first RMD, every subsequent distribution must be taken by December 31 each year.
No extensions. No exceptions. December 31 is a hard deadline.
The "Still Working" Exception
There is one exception worth knowing about.
If you're still working past age 73 AND you don't own more than 5% of the company, you can delay RMDs from your current employer's 401(k) until you actually retire.
Key point: This only applies to your current employer's 401(k). You still must take RMDs from:
- All of your IRAs
- Old 401(k)s from previous employers
How to Calculate Your RMD
The calculation itself is straightforward:
RMD = Account Balance (December 31 of prior year) ÷ Life Expectancy Factor
The life expectancy factor comes from IRS tables. Most people use the Uniform Lifetime Table.
Example Calculation
Let's say:
- It's 2025 and you're 75 years old
- Your IRA balance on December 31, 2024 was $500,000
- The life expectancy factor for age 75 is 24.6
Your 2025 RMD = $500,000 ÷ 24.6 = $20,325
That's the minimum amount you must withdraw during 2025.
Which IRS Table Should You Use?
There are three RMD tables:
- Uniform Lifetime Table (most common)
- For single filers
- For married couples where the spouse is not more than 10 years younger
- For married couples where the spouse is not the sole beneficiary
- Joint and Last Survivor Table
- Used ONLY if your spouse is your sole beneficiary AND more than 10 years younger
- Results in a smaller RMD because of the longer combined life expectancy
- Single Life Expectancy Table
- For beneficiaries of inherited IRAs
For 99% of readers, you'll use the Uniform Lifetime Table.
Important Notes on Calculating RMDs
- Calculate separately for each account – If you have three IRAs, calculate the RMD for each one
- IRAs can be aggregated – You can add up all your IRA RMDs and take the total from one IRA or split it across multiple accounts
- 401(k)s cannot be aggregated – Each 401(k) requires its own separate RMD taken directly from that account
This aggregation rule is where many people make mistakes. You cannot take your 401(k) RMD from an IRA, even if the total amount is correct.
The Penalty for Missing Your RMD
Let's talk about what happens if you mess this up.
The penalty used to be brutal: 50% of the amount you failed to withdraw. Congress recently reduced it, but it's still harsh.
Current RMD Penalty
If you miss your RMD, the penalty is 25% of the amount you didn't take.
If you catch the mistake and correct it within 2 years, the penalty drops to 10%.
Example:
- Your required RMD is $20,000
- You forget and take $0
- Penalty: $5,000 (25% of $20,000)
- And you STILL owe income tax on that $20,000 when you eventually withdraw it
The Penalty Gets Even Worse If You Pay It From Your IRA
Here's something most people don't think about: What if you need to withdraw money from your IRA to pay the penalty?
That withdrawal is also taxable as ordinary income.
So the total damage becomes:
- Original missed RMD: $20,000 (taxable when you take it)
- Tax on $20,000 at 24% bracket = $4,800
- Penalty: $5,000 (not deductible)
- Additional withdrawal to cover the penalty: $5,000 (also taxable)
- Tax on that $5,000 = $1,200
- Total cost: $11,000
It's a vicious cycle. Don't let it happen to you.
How to Fix a Missed RMD
If you realize you missed an RMD, here's what to do:
- Take the missed RMD immediately – Don't wait another day
- File IRS Form 5329 – Attach a letter explaining what happened and how you corrected it
- Request a penalty waiver – The IRS may waive the penalty if you can show it was an honest mistake and you corrected it promptly
The IRS is often reasonable about waiving penalties for honest mistakes, but don't count on it. Just don't miss your RMD in the first place.
Seven Critical RMD Mistakes to Avoid
Mistake #1: Not Starting on Time
This sounds obvious, but people turn 73, get busy with life, and forget. Or they think, "I don't need the money, so I'll skip it."
Wrong. "Required" means required.
How to avoid it:
- Set calendar reminders starting in January of the year you turn 73
- Consider setting up automatic RMD withdrawals with your custodian
- Many firms like Fidelity, Vanguard, and Schwab offer this service
Mistake #2: Forgetting You Have Multiple Accounts
I see this constantly. Someone has:
- Two IRAs at Fidelity
- An old 401(k) from a previous employer
- Another IRA at Vanguard they opened years ago and forgot about
They take the RMD from their main IRA and think they're done. Wrong.
You must take RMDs from ALL of your tax-deferred retirement accounts (except Roths).
How to avoid it:
- Create a master list of every retirement account you own
- Review it every January
- Consider consolidating accounts (but be careful—there are pros and cons to consolidation)
Mistake #3: Incorrectly Aggregating Accounts
Remember: You CAN aggregate IRAs. You CANNOT aggregate 401(k)s.
What this means:
If you have three IRAs with a combined RMD of $30,000, you can:
- Take all $30,000 from one IRA, OR
- Split it however you want across your IRAs
But if you have two 401(k)s, each with a $10,000 RMD:
- You MUST take $10,000 from the first 401(k)
- You MUST take $10,000 from the second 401(k)
- You cannot take the full $20,000 from just one account
I've seen people take their entire 401(k) RMD from an IRA, thinking the total dollar amount is what matters. This doesn't satisfy the 401(k) RMD requirement. The IRS views this as a missed RMD from the 401(k), and you'll face a 25% penalty on the amount you should have taken from that specific 401(k).
Mistake #4: Not Taking an Inherited IRA RMD
If you inherit a traditional IRA and the original owner was already taking RMDs, you may need to take the RMD for the year they passed away.
Example:
- Your mom passes away in March 2025
- She was 80 and taking RMDs
- She hadn't taken her 2025 RMD yet
- YOU are responsible for taking it and paying the taxes
Here's what makes inherited IRAs tricky: The rules changed significantly in recent years. If you inherit an IRA from someone other than your spouse, you typically must empty the account within 10 years. But during those 10 years, if the original owner had already started taking RMDs, you may also need to take annual RMDs. The rules differ depending on when the original owner passed away, whether they had started RMDs, and your relationship to them.
Bottom line: If you inherit an IRA, don't wait until tax time to figure this out. Talk to a CPA or financial advisor immediately—ideally within weeks of the inheritance.
Mistake #5: Rolling Over a 401(k) to an IRA Without Taking the RMD First
Here's a scenario that trips people up:
- You're 75 and still working
- You decide to roll your old 401(k) into an IRA
- But you haven't taken your RMD from that 401(k) yet
Problem: You can't roll over your RMD. You must take it first.
If you roll over the full amount without taking your RMD, the IRS considers the RMD amount as an excess contribution to your IRA. More penalties, more headaches.
Solution: Take your RMD first, then complete the rollover with the remaining balance.
Mistake #6: The Double-Dip Disaster
This happens when people think one withdrawal satisfies multiple RMD requirements when it doesn't.
Example:
- You have an IRA and a 403(b)
- You take $40,000 from your IRA, thinking it covers both accounts
- It doesn't
Remember: 403(b)s can only be aggregated with OTHER 403(b)s—not with IRAs.
Mistake #7: Not Planning for the Taxes
RMDs are fully taxable as ordinary income.
If your RMD is $30,000, that's $30,000 added to your taxable income for the year. Many people take their RMD, spend it, and then discover in April that they owe thousands in taxes they didn't budget for.
How to avoid it:
- Have taxes withheld from your RMD (typically 10-20%)
- OR make quarterly estimated tax payments
- Work with your CPA to determine the right withholding amount
Real-World RMD Mistakes (And What We Can Learn)
Let me share three real examples I've seen in my practice (names changed for privacy).
Example #1: The Double RMD Trap
John turned 73 in June 2025. He was busy and didn't really need the money, so he figured he'd wait until early 2026 to take his first RMD.
April 1, 2026 arrived, and he took his first RMD of $25,000. Then in December 2026, his custodian reminded him: "You need to take your 2026 RMD too."
He had to take another $25,000—that's $50,000 in extra income in one calendar year.
This pushed him from the 22% tax bracket into the 24% bracket and triggered Medicare IRMAA surcharges. His Medicare premiums increased by $2,000 per year for the next two years.
All because he delayed his first RMD.
Example #2: The Forgotten 401(k)
Sarah had three IRAs. She calculated her RMDs, aggregated them correctly, and took the total from her main Fidelity IRA. Done, right?
Wrong.
She forgot about an old 401(k) from a job she left 10 years ago, sitting at Vanguard with $150,000 in it. She didn't realize she needed to take an RMD from that 401(k) separately.
The IRS sent her a letter: "You owe a penalty of $1,500 (25% of the $6,000 RMD you missed)."
She had to scramble, file Form 5329, and plead her case. Eventually got the penalty waived, but it was months of stress and uncertainty.
Example #3: The Inherited IRA Surprise
Mike's dad passed away at age 78, and Mike inherited the IRA. Mike knew about the 10-year rule for inherited IRAs but didn't know that his dad hadn't taken his RMD for the year yet.
Mike was now responsible for taking that RMD within the same year his dad passed. He didn't realize this until he talked to his CPA the following April. By then, it was too late.
Penalty, paperwork, headache.
The lesson? If you inherit an IRA mid-year, immediately ask: "Did the deceased already take their RMD this year?"
Your RMD Action Plan
If You're Turning 73 This Year
- Calculate your RMD by January using your December 31 balance from the prior year
- Decide whether to take it by December 31 or delay until April 1 (my recommendation: take it by December 31)
- Set up tax withholding or arrange quarterly estimated payments
- Mark December 31 on your calendar in bold—this is your deadline every year going forward
- Consider automatic RMD withdrawals with your custodian to eliminate the guesswork
If You're Already Taking RMDs
- Create a master list of all your retirement accounts—don't forget old 401(k)s or forgotten IRAs
- Calculate this year's RMDs for each account and double-check your custodian's calculations
- Understand the aggregation rules (IRAs can aggregate; 401(k)s cannot)
- Plan for taxes by setting up withholding or quarterly payments
- Set calendar reminders in January and November each year
If You're Age 60-72 (Before RMDs Start)
You're not taking RMDs yet, but this is actually the BEST time to plan.
Consider:
- Roth conversions while you're in lower tax brackets
- Modeling your future RMDs to understand the tax impact
- Consolidating accounts to simplify future RMD calculations
- Planning your retirement income strategy to minimize lifetime taxes
This pre-RMD window is golden. Don't waste it.
Coming Up Next: Advanced RMD Strategies
In Part 2 of this series, we'll dive deep into:
- Qualified Charitable Distributions (QCDs) – How to satisfy your RMD while giving to charity and paying $0 in taxes on the distribution
- How RMDs interact with Social Security, Medicare IRMAA, and state taxes
- Pre-RMD planning strategies that can save you tens of thousands in taxes
- Real examples of people who used smart strategies to minimize their RMD tax burden
Final Thoughts
RMDs aren't optional—they're mandatory. But with proper planning, they don't have to derail your retirement strategy.
The key is understanding the rules, avoiding common mistakes, and planning ahead. If you're in your 60s, start thinking about RMDs now. If you're already taking them, make sure you have systems in place so you never miss a deadline.
And remember: The 25% penalty is completely avoidable if you simply follow the rules and take your distributions on time.
Resources:
- Read A Smarter Way to Retire: 10 Steps Towards a Confident Financial Future
- Schedule a consultation with our team
Watch the full podcast episode on YouTube:Watch Here
Tony Leonardi, CFP®, CRPC®, MBA, is the founder of Leonardi Family Wealthcare in Newtown, Connecticut. With over 30 years of experience, Tony specializes in comprehensive retirement planning, tax strategies, and multi-generational wealth planning. For more information, visit LeonardiFamilyWealthcare.com.