1. Not Having Liquidity to Meet RMDs: 
    A common mistake made by people and their advisors is putting dollars that they wish to withdraw down the road to meet RMDs into assets that do not have liquidity. For example, a customer could put their funds into real estate or an annuity that do not provide the customer the ability to easily take a portion of their money out to meet RMDs. However, there are annuities that have liquidity and/or RMD-friendly features. If you have dollars to meet RMDs parked in other liquid assets, then there is no issue.   

  2. Postponing Your Initial RMD: 
    Typically, you're obligated to take Required Minimum Distributions (RMDs) by the end of each calendar year. Nevertheless, in the first year following your 72nd birthday and retirement, you have until April 1 of the subsequent year to complete your initial distribution. Yet, capitalizing on this extended timeline means you'll then need to take two distributions within a 12-month span. This is due to the necessity of fulfilling the subsequent annual minimum distribution by December 31 of the same year. Opting for two RMDs in one year could impact your yearly income, as these distributions are subject to regular income tax. Accumulating excessive income within a single year from retirement accounts might potentially push you into a higher tax bracket.

  3. Neglecting Your RMD Obligation:
    A prevalent mistake involves simply forgetting to initiate your RMD. Failing to comply with the annual deadline incurs a substantial 50% penalty on the RMD amount. Many financial institutions provide automated RMD withdrawals as an option to customers, so you can set up these withdrawals to occur over various timeframes of regularity, such as monthly, semi-annually, quarterly, or annually. 

  4. Mixing Account Types to Meet RMDs: 
    For individuals with multiple types of retirement accounts, understanding the rules governing annual distributions for each specific account is crucial. It's paramount to recognize that you cannot blend withdrawals from different retirement account types—like an IRA and a 401(k)—to satisfy the annual RMD requirement for a single account. For instance, you're not allowed to combine withdrawals from a traditional IRA and a 401(k) to meet the RMD criteria for the traditional IRA. Conversely, if you possess multiple retirement accounts of the same type, such as several traditional IRAs, you can employ withdrawals across those accounts to fulfill the annual RMD for one of them. There's also a distinction to be made concerning retirement plans from past employers. Specific nuances apply here as well and require careful adherence. Former employer-sponsored retirement plan RMDs must be directly taken from each plan; for instance, if multiple former retirement plans exist, RMDs must be taken from each individual plan separately as consolidation combining them isn't allowed.

  5. Combining RMDs with Your Spouse: 
    Despite the numerous financial advantages of marriage, retirement accounts are individual holdings and not joint assets. Consequently, this affects how RMDs are managed. Often, couples mistakenly assume that they can fulfill the entire annual required distribution from one spouse's account, which isn't accurate; this could trigger the 50% excise tax rule on the non-withdrawing spouse's eventual distribution. There could also be an adverse (higher) tax bracket shifting for the withdrawing spouse.

  6. Withdrawing an Incorrect Amount: 
    Accurately calculating RMDs is essential. Withdrawing less than the mandated RMD amount might result in a tax penalty of up to 50% of the required withdrawal. Online RMD calculators are available to help navigate the intricate process of determining the correct withdrawal sum. Crucially, your annual RMD calculation hinges on the account balance as of December 31 of the prior year. However, this isn't the sole consideration. RMDs are calculated by dividing the December 31 balance of each account by life expectancy, per the IRS life expectancy tables. As retirees get older and life expectancy decreases, RMDs increase. For example, a person at age 90 has an RMD of almost 10% of the account's value.


    This summary is a generalization. It is not legal or financial advice. Please consult your relevant professional.