What Is The Biggest RMD Mistake?

Most people who search this question are bracing for a penalty. The IRS does impose a stiff excise tax for missing an RMD, and that is worth knowing. But in my experience working with pre-retirees, the missed withdrawal is rarely the real problem. The biggest RMD mistake is subtler, more expensive, and almost entirely avoidable if you see it coming.

The Mistake That Actually Costs You: Waiting to Have a Strategy

The answer is not "forgetting to take your RMD." It is arriving at age 73 with a large traditional IRA or 401(k) and no plan for how those distributions interact with everything else in your financial life.

Here is what that looks like in practice. You spent thirty years doing the right thing: maxing out your 401(k), deferring taxes, letting the account compound. Then at 73, the IRS sets the schedule. You must take distributions based on your account balance divided by a life-expectancy factor from the Uniform Lifetime Table, whether you need the money or not. The distribution is ordinary income. It stacks on top of Social Security, which may push more of your benefit into taxable territory. It pushes against IRMAA thresholds, which can increase your Medicare Part B and Part D premiums by hundreds of dollars per month. It may pull capital-gains income that would otherwise have been taxed at zero percent into the fifteen percent bracket.

None of those outcomes are the RMD rule's fault. They are the result of a large pre-tax balance meeting an income-tax system that was always going to collect. The mistake is not preparing earlier, when you still had options.

The Rules, The Compounding Effect, and The Real Tradeoff

Under current law, RMDs begin at age 73 for anyone who has not yet started distributions (a change introduced by SECURE 2.0). The distribution amount is calculated each year using your December 31 account balance from the prior year and the applicable divisor from the IRS table. A 73-year-old using the Uniform Lifetime Table currently uses a divisor of 26.5, meaning roughly 3.8 percent of the balance must come out in year one. That percentage rises each year.

The tradeoff people miss is not the withdrawal itself. It is the tax-bracket stacking. A retiree with $200,000 in annual pension and Social Security income does not need the IRS to force another $60,000 in distributions. But if a $1.5 million traditional IRA built up during high-earning years has never been touched, that is close to what starts happening at 73. That income lands in the 22 or 24 percent bracket (using 2025 figures, where 22 percent begins at $47,151 for single filers and 24 percent at $100,526). For married couples, the compression can feel even more sudden.

There is also the inherited-IRA dimension. The 10-year rule introduced by SECURE requires most non-spouse beneficiaries to empty an inherited account by December 31 of the tenth year following the owner's death, and recent IRS guidance requires annual distributions in years one through nine if the original owner had already begun RMDs. A large pre-tax IRA passed at death can push children into their peak earning years with forced distributions they have no ability to time or smooth.

The penalty for a missed RMD was reduced by SECURE 2.0 from 50 percent to 25 percent of the shortfall (and to 10 percent if corrected promptly), but the better goal is not to be managing penalties at all.

Illustrative Example: Two Different Outcomes at 75

Consider two clients who retire at 65 with identical $1.2 million traditional IRAs. Both are illustrative, not actual clients.

Client A does nothing with the account during her pre-RMD years. At 73, her balance has grown to roughly $2 million assuming a 6 percent annual return. Her first RMD is approximately $75,000. Combined with her other income, she consistently lands in the 24 percent bracket for the next decade and sees IRMAA surcharges add roughly $3,400 per year in extra Medicare costs.

Client B, guided by a plan, begins modest Roth conversions at 66, moving $50,000 to $80,000 per year into a Roth account during years when his income is lower and before Social Security begins. He pays tax on those conversions at 22 percent. By 73, his traditional balance is closer to $1.1 million. His RMDs are smaller, his bracket stays lower, his Medicare premiums stay at the standard rate, and the Roth account passes to heirs with no RMD requirement.

The conversion taxes were real. So were the savings. The only difference was when the decision was made.

How This Connects to the RMDs and QCDs Pillar

This page focuses on one mistake, but the full picture of required distributions is broader. If you want to understand how RMDs are calculated, what the SECURE 2.0 changes mean for your timeline, how the 10-year inherited-IRA rule affects your estate plan, and how Qualified Charitable Distributions allow charitably-minded retirees to satisfy their RMD without recognizing taxable income, start with the full framework at RMDs and QCDs: The Required-Distribution Rules That Shape Retirement Income After 73.

Within the Sporos Doctrine, this conversation sits in the Harvest stage, which is where tax-aware withdrawals become the primary tool. But the real work happens earlier, during the Soil layer, when the tax architecture of the plan is still being built. A Roth conversion strategy, account location decisions, and sequencing choices made in your late fifties and sixties determine what your RMD landscape looks like in your seventies.

Frequently Asked Questions

Can I just reinvest my RMD back into an account?

Yes, but not into a traditional IRA or 401(k). After you satisfy the RMD, the after-tax proceeds can go into a taxable brokerage account, a Roth IRA (if you meet income and earned-income requirements), or simply stay in cash. The distribution itself cannot be rolled back.

What if I don't need the income from my RMD?

That feeling, that you don't need it, is exactly when the strategy matters most. Unneeded distributions that are not planned for simply inflate your taxable income. A Qualified Charitable Distribution (up to $105,000 per individual in 2025, indexed for inflation) allows charitably inclined retirees to direct the RMD straight to a qualifying charity and satisfy the distribution requirement without the income appearing on their return.

Does a Roth IRA have RMDs?

No. Original owners of Roth IRAs are never subject to RMDs during their lifetime under current law. This is one of the core reasons Roth conversions during the pre-RMD window are worth serious evaluation. Roth 401(k) accounts, however, did carry RMD requirements until SECURE 2.0 eliminated them starting in 2024.

At what age should I start thinking about RMD planning?

The most impactful window is typically 60 to 72, before Social Security begins, before Medicare IRMAA lookback years matter, and before RMDs are mandatory. That is when income tends to dip and conversion opportunities are most favorable. Waiting until 72 or 73 to think about it is waiting until the options have narrowed.

Does the RMD penalty apply to Roth IRAs?

No. Because Roth IRAs have no lifetime RMD requirement for the original owner, there is no penalty to trigger. Inherited Roth IRAs are subject to the 10-year rule for non-spouse beneficiaries, but annual distributions are not required during that period.

What to Do Next

1. Pull your current traditional IRA and 401(k) balances and project what they might be at 73 using a reasonable growth assumption. That number is the starting point for an honest conversation.
2. Run a rough bracket analysis for your expected retirement income before RMDs begin. If you see meaningful room between your projected income and the top of the 22 or 24 percent bracket, that room has value.
3. Ask your advisor whether a Roth conversion schedule has been modeled specifically around your RMD exposure, your Social Security timing, and your IRMAA thresholds. If the answer is vague, that is a finding worth acting on.
4. If you are charitably inclined and already taking RMDs, confirm whether you are using QCDs before writing personal checks to charity. The ordering matters for how the income appears on your return.

The information provided is for educational purposes only and does not constitute investment, legal, or tax advice. Tax law changes frequently — verify current rules before acting. Consult with qualified professionals for guidance specific to your situation.