Please be careful. Any of these can happen to you.
IRS increases 401(k) contribution limits for 2026
The IRS will increase 401(k) and catch-up contribution limits for 2026, allowing workers to save up to $32,500 for retirement.
If you’re saving for retirement in a traditional IRA or 401(k), you don’t always have complete control over how that money is withdrawn. Once you reach age 73 or 75, depending on your year of birth, you must begin taking required minimum distributions (RMDs).
It’s important to understand how RMDs work. Part of that involves avoiding these big RMD mistakes.
1. Get the timing wrong
RMDs are due by December 31st of each year. It’s very simple. What may be confusing is that you can postpone your first RMD withdrawal until April 1 of the year following the year in which the withdrawal is required.
However, if you delay taking your first RMD, you will need to take two RMDs in the following year. The April RMD satisfies the previous year’s RMD, so you must take the second RMD by December 31 to avoid the penalty.
Please note that there is a 25% penalty for RMDs not received on time. If you have a large IRA or 401(k), this can be a large amount. Therefore, it’s important to know your RMD deadlines, especially if you want to postpone your first RMD deadline.
2. Assume you have to spend money
One of the big misconceptions about RMDs is that the money you withdraw from your IRA or 401(k) must be spent. Once that money is out of your account, you can do anything with it. All the IRS cares about is taxing your withdrawals.
If you don’t need RMD, don’t use it. Instead, invest that money in a taxable brokerage account, open a CD, or put it in a high-yield savings account. All of these options can grow your money even without tax breaks.
3. Perform a major Roth conversion in one year to get out of RMD
If you don’t want to be subject to RMDs when you retire, you may be able to avoid them by converting your traditional retirement account to a Roth. However, avoid making large Roth conversions all at once.
When you make a Roth conversion, the money you move counts as taxable income for the year. Large conversions can result in very high taxes. And it can have other consequences as well.
For example, if you have Medicare, hundreds of thousands of dollars worth of Roth conversions could mean you’ll be billed several hundred dollars more each month in Part B premiums after two years.
A better bet is to gradually convert your traditional retirement savings to a Roth. The more years you give yourself, the better.
RMDs can be a hassle, but falling victim to these mistakes can make things even worse. Read up on how RMDs work before you retire so you know what to expect. Also, if you plan on converting to a Roth, be sure to time it strategically to minimize your tax liability.
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