How great is it that a tax-deferred retirement plan allows you to invest pre-tax dollars? Such plans encourage saving for your golden years while reducing the taxes you owe. The only catch is this: When you invest in a tax-deferred retirement plan, you eventually must begin making withdrawals and pay taxes on the money withdrawn.

Required minimum distributions (RMDs) are the minimum amounts you must withdraw from your accounts annually. Typically, you’re required to begin making withdrawals from a traditional IRA, SEP IRA, SIMPLE IRA, or other traditional retirement plan at age 73 (or age 75 if you were born in 1960 or later).

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Your retirement accounts are there to help you live your golden years in comfort, and RMDs exist to remind you to make withdrawals (and pay your taxes!). While there’s nothing especially complicated about RMDs, they can seem intimidating at first glance. However, if you can avoid these common mistakes others make, it should be smooth sailing for you.

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1. Missing a distribution date

One of the easiest mistakes to avoid is a missed distribution date. You must take your first RMD no later than April 1 following the calendar year you turn 73. Thereafter, you must take the RMD by Dec. 31.

There’s a very good reason to mark these dates in red on your calendar. Failure to make a withdrawal by the distribution date will result in a 25% penalty on the amount you were supposed to take. For example, if your RMD is $10,000 and the funds aren’t withdrawn, you may face a $2,500 penalty. If you correct the mistake within two years, the penalty drops to 10%.

2. Miscalculating how much you need to withdraw

Another common RMD mistake is failing to withdraw the full amount. Let’s say you’re supposed to withdraw $10,000, but make an $8,000 withdrawal instead. The amount under-withdrawn ($2,000 in this case) may be penalized 25%, or $500. To add insult to injury, you’re subject to taxes on the full amount you were supposed to withdraw. Fortunately, the IRS provides tables, and there are online calculators designed to help you find the precise amount you’re meant to withdraw.

3. Failing to consider taking out some tax-deferred money earlier than you absolutely have to

Few things are more satisfying than watching money you worked hard for grow. Don’t be surprised if, after you retire, you’re tempted to let your tax-deferred dollars grow until you must take an RMD. Let’s say you retire at age 67 and decide to leave the funds in your retirement account until age 73 (or 75, depending on your age). Letting your money ride in a tax-deferred account can be a costly mistake.

Historically speaking, retirement accounts have done well over the long term in the U.S. For example, retirement assets increased by $4.4 trillion (13.3%) between 2013 and 2022 when adjusted for inflation. If you watch the market long enough, you know that fluctuations happen (sometimes significant, scary fluctuations), but over time, the market has performed well, and retirement accounts have benefited.

If you’re tempted to leave your retirement funds where they are, you may consider visiting a financial advisor. The goal is to figure out your next best move, and an advisor can help you determine if your account’s expected growth will likely push you into a higher tax bracket. Since you must pay taxes on funds as they’re withdrawn, the smart financial move may be to take voluntary withdrawals a little at a time while still in a lower tax bracket.

Naturally, whether RMDs will push you into a higher tax bracket depends on various factors, including how large your RMDs will be. A financial advisor can help you sort it out.

4. Making one simple mistake when donating to charity

A new RMD rule in 2025 allows you to donate $108,000 from a traditional IRA, inherited IRA, inactive Simplified Employee Pension (SEP) plan, or inactive Savings Incentive Match Plan for Employees (SIMPLE) IRAs to a qualified charity. If you’re married, you and your spouse can each donate up to $108,000 for $216,000 in charitable contributions. Making contributions is a good way to support a charity you care about while lowering your overall tax bill.

The vital thing to remember is this: The funds sent to the charity must be directly transferred from the IRA. If you were to withdraw the money and write a check to the charity, you would be taxed on the entire amount. The only way to avoid the tax is to allow the money to flow from the IRA to the charity without stepping into the middle of the transaction.

The good news is that you have time to decide which strategies benefit you and which may leave you with regret. Even if you’ve been taking RMDs for years, nothing is written in stone, and you can always shift the way you handle withdrawals.

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