3 RMD Blunders That Could Cost You Dearly at All Costs in 2026

Managing your retirement accounts becomes significantly more complicated once you reach age 73. That’s when the IRS transitions from letting you control your withdrawals to requiring you to take distributions whether you want them or not. Understanding required minimum distributions (RMDs) isn’t optional—it’s essential to protecting your financial security at all costs. Missing the rules around these mandatory withdrawals can trigger substantial penalties and unexpected tax bills that eat away at your hard-earned savings.

Understanding When RMDs Kick In and Why Missing Deadlines Costs You

Once you turn 73, the IRS expects distributions to begin immediately. While you can technically delay your very first RMD until April 1 of the following year, the standard deadline for all subsequent distributions is December 31 each year. This is a critical distinction many people overlook.

If you miss that December 31 deadline, the penalty is severe: 25% of whatever amount you failed to withdraw. This isn’t a small administrative fee—it’s a substantial tax hit on top of the taxes you’ll already owe on your withdrawals. Given that year-end can be hectic with holidays and other financial decisions, the smartest approach is to set up automatic RMD withdrawals. Automation removes the human element of remembering dates and ensures you stay compliant without stress.

The cost of overlooking this single deadline could set your retirement back considerably. That’s precisely why treating RMD compliance at all costs should be a core part of your financial planning for 2026.

The Hidden Tax Trap of Deferring Your Initial RMD

Here’s a common strategy that often backfires: deferring your first RMD to April 1 seems appealing because it delays your immediate tax bill. Many people assume this buys them time and breathing room. But there’s a major catch nobody talks about until it’s too late.

If you defer your first RMD to April 1, you’re then required to take two full RMDs in that following year—one for the year you deferred, plus one for the new year. This creates a compressed taxation scenario where your income spikes substantially in a single year. A doubled RMD withdrawal can trigger a tax bill large enough to push you into a higher tax bracket, creating ripple effects across your financial life.

One often-overlooked consequence involves Medicare premiums. If your income exceeds certain thresholds due to large RMD distributions, you’ll face surcharges on your Medicare premiums two years later. What felt like a smart deferral strategy suddenly costs you thousands in unexpected healthcare expenses. These hidden consequences make it critical to evaluate the long-term tax impact before deciding to push off your first distribution.

The “Still Working” Loophole That Doesn’t Apply Everywhere

Here’s where many people make a critical error in judgment. Just because you’re old enough to be subject to RMD requirements doesn’t mean you have to take them if you’re still working. If your current employer sponsors a retirement plan (like a 401(k)) and you own 5% or less of the company, you can defer RMDs from that specific plan as long as you remain employed there.

However—and this is crucial—this “still-working exemption” only applies to your current employer’s retirement plan. Any other retirement accounts are not protected by this rule. If you hold IRAs or 401(k)s from previous employers, the RMD requirement applies regardless of your current employment status. Many people fail to distinguish between these accounts and assume they’re exempt across the board, leading to costly oversight.

The 5% ownership threshold is important to understand as well. If you own more than 5% of your employer’s business, the exemption disappears entirely, even if you’re actively working.

Protecting Your Retirement at All Costs: Your RMD Action Plan

The stakes around RMD compliance are too high to leave to chance. Between the 25% penalties, surprise tax brackets, Medicare surcharge complications, and multi-account tracking, managing these distributions at all costs should be your priority in 2026.

Start now by identifying all your retirement accounts and calculating what you’ll owe. Set up automatic withdrawals for any account that triggers an RMD requirement. Consult with a tax professional about the implications of deferring your first distribution versus taking it immediately—the math differs for everyone based on income, other assets, and long-term tax planning.

The three mistakes outlined here represent the most common costly blunders retirees face. By taking them seriously and building them into your financial strategy, you can protect the retirement you’ve worked decades to build.