Juggling finances in retirement can be tricky. Living on a fixed income means making careful money moves without a steady paycheck.
If you’ve planned appropriately, you likely have several pools of money to draw from, including Social Security and retirement accounts you’ve been funding for years.
But as the end of the year approaches, it’s especially important for retirees to take their required minimum distributions (RMDs) from these accounts. Failing to do so before Dec. 31, 2025, could be a costly mistake.
Understanding RMDs
Starting at age 73, most retirees must take required minimum distributions from pretax accounts such as the 401(k). The amount is based on your account balances, age, and an IRS “life expectancy factor.”
Your first RMD is due by April 1 of the year after you turn 73, and Dec. 31 is the deadline for all subsequent withdrawals. If you wait until April 1 after turning 73, you’ll need to take two RMDs that year.
To calculate your RMD, divide the prior Dec. 31 balance of each account by the IRS’ life expectancy factor. You can also use an online RMD calculator to determine the annual withdrawal amount.
For example, if you have $300,000 in a retirement account and just turned 73, your minimum distribution would be $11,320. Keep in mind this is a basic calculation and does not account for other factors such as marital status or the age of beneficiaries.
3 costly RMD mistakes homeowners can make before year’s end
Millions of retirees face complicated RMD rules and risk IRS penalties if they make errors.
One common mistake is forgetting to include all eligible accounts, such as an old 401(k), a rollover, or an inherited IRA. According to a study by Capitalize and the Center for Retirement Research at Boston College, $2.1 trillion sits idle in 401(k) accounts, with an average balance of $66,691. Many retirees lose track of these accounts due to job changes, rollovers, or a lack of portability.
Taking stock of all accounts not only helps fund your lifestyle but also avoids the standard penalty: a 25% excise tax on any RMD amount not withdrawn.
Another mistake is not understanding recent changes to RMDs.
The SECURE 2.0 Act, signed into law on Dec. 29, 2022, introduced several retirement savings provisions. Starting on Jan. 1, 2026, individuals aged 60 and older can make additional contributions of $11,250 to their retirement accounts, according to Fidelity Bank.
While this doesn’t affect retirees taking RMDs at the end of this year, it’s important for those entering retirement in the coming years. Additionally, under the new law, individuals earning more than $145,000 must make catch-up contributions to a Roth account rather than a traditional retirement account.
For many retirees, income from a traditional IRA or 401(k) can create a tax headache, especially when RMDs push them into a higher tax bracket. A Roth IRA, by contrast, allows tax-free withdrawals at any time and in any amount, unlike traditional accounts that require RMDs starting at age 72.
But perhaps the biggest RMD mistake is procrastination. Rushing in December increases the likelihood of miscalculating your RMD, selling the wrong assets, or missing the deadline altogether.
It’s wise to consult your financial adviser well before the end of the year. If you haven’t already, prioritize this conversation as soon as possible.