A. The first common RMD withdrawal mistake - mix different types of retirement accounts.
For example, you have money in both 401(k) and IRA accounts which is common for most people. When you reach RMD age, you calculate the required minimum withdrawals from both, but you can NOT simple take the grand total out of one account, for example, IRA. If you do, you will incur 50% penalty from IRS.
However, if you have multiple IRA accounts with different values, you could add up the total RMDs and withdraw the entire amount from just one of the IRAs.
Taking the 401(k) portion from one of the IRAs triggers the penalty. Even though you took the proper total amount from all the accounts, the IRS will say you didn’t take it from the proper place. Thus, a simple paperwork error costs you a 50% penalty on the amount you were supposed to take from the 401(k) — and that’s on top of the taxes.
To make things simple, you can roll your dormant 401(k) into an IRA, then you could take the total withdrawal from just one of the IRAs.
In our next blog post, we will discuss another common RMD withdrawal mistake - wrong account value calculation.