Forgotten IRS Retirement Rule Is Costing Americans $1.7 Billion a Year and It’s Still Catching Retirees Off Guard
Missing a required minimum distribution (RMD) might sound like a minor paperwork error. But new research from Vanguard shows it’s anything but small: investors who failed to take required withdrawals in 2024 triggered an estimated $1.7 billion in IRS penalties, with the biggest mistakes concentrated among people with the smallest retirement accounts.
Here’s what the data reveals; and what retirees can do to avoid an expensive oversight.
RMDs: A Simple Rule With Costly Consequences
Required minimum distributions apply to most traditional IRAs and pre-tax retirement plans once account holders reach age 73. Each year, retirees must withdraw at least a government-calculated minimum and pay income tax on it.
Fail to do so, and the IRS imposes an excise tax on the missed amount. Under SECURE 2.0, that penalty ranges from 10% to 25%, down from the previous 50%, but the bill can still be painful.
According to Vanguard, about 6.7% of IRA investors subject to RMDs took no distribution at all in 2024, exposing themselves to penalties averaging between $1,160 and $2,900.
Small Accounts, Big Problem
One of the report’s most striking findings: the smaller the account, the more likely the mistake.
56.8% of investors with IRA balances under $5,000 missed their RMD
Only 2.5% of investors with balances over $1 million did the same
Small accounts are often older, left behind after job changes, or simply forgotten; making them prime candidates for costly noncompliance.
The “Forget and Forget” Trap
Missing an RMD isn’t usually a one-time error. Vanguard found a strong pattern of repeat behavior:
55% of investors who missed an RMD one year missed it again the next
Just 3% of those who took an RMD one year missed it the following year
As Vanguard’s head of behavioral economics Andy Reed put it, many investors don’t “set and forget” — they simply “forget and forget.”
Age and Gender Don’t Matter; Behavior Does
The likelihood of missing an RMD had nothing to do with age or gender, Vanguard found. Instead, it was driven by engagement and organization.
Investors who actively manage their accounts; or automate withdrawals, overwhelmingly comply. Those who don’t engage regularly are far more likely to fall short or miss distributions entirely.
Partial Withdrawals Can Still Trigger Penalties
It’s not just all-or-nothing mistakes. Vanguard found that:
24% of investors withdrew money but less than their required amount.
Unless the shortfall was covered by withdrawals from other IRAs, these investors may still owe excise taxes
This confusion is common for retirees with multiple accounts, especially after decades of job changes.
Why RMDs Are Easy to Miss in a Busy Retirement
Many retirees juggle multiple financial priorities at year-end: holiday spending, tax planning, family obligations, and health decisions. RMDs often fall to the bottom of the list.
Compounding the issue, people now change jobs nine or more times during their careers, leaving behind scattered retirement accounts that are easy to overlook.
The Calendar Trap: Deadlines Matter
Most RMDs must be taken by December 31. First-time RMDs can be delayed until April 1 of the following year, but that delay can backfire.
Those who wait end up taking two taxable RMDs in the same year, potentially pushing them into a higher tax bracket.
Automation Is the Simplest Fix
Vanguard and other providers point to one solution above all others: automatic RMD services. These programs calculate the required amount and distribute it on schedule; often at no cost.
Other smart steps include:
Consolidating small IRAs into fewer accounts
Reviewing RMD eligibility annually
Confirming withdrawals meet the full required amount
A Costly Mistake That’s Entirely Avoidable
RMD penalties aren’t the result of risky investing or market volatility; they’re the result of inattention. And as Vanguard’s research shows, that inattention is costing retirees billions of dollars collectively, with the smallest savers hit hardest.
For investors approaching or already in retirement, the lesson is clear: a little automation and organization can prevent an expensive mistake; year after year.
The Smart Way to Stay Ahead of RMD Mistakes
The takeaway for retirees is simple: regularly monitor all of your retirement accounts, not just the ones you actively use.
Periodic reviews; ideally with the help of a qualified financial advisor can ensure required minimum distributions are taken correctly and on time, while also identifying tax-saving and consolidation opportunities.
Free financial software such as Personal Capital by Empower can make this process far easier by allowing investors to track all their accounts in one place, monitor balances year-round, and use its built-in retirement planner to project future income needs.
The platform also flags hidden fees, helps uncover costly fund expenses, and includes a budget tracker that keeps cash flow aligned with distribution requirements.
In an era when forgotten accounts are triggering billions in penalties, consistent oversight; supported by the right tools and professional guidance, can make the difference between a smooth retirement and an unnecessary tax bill.
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Maximize Your Benefits: Essential Social Security Strategies for Singles
While singles may have fewer Social Security filing options than married couples, smart planning around when to claim benefits can pay off for anyone, including those flying solo.
Maximize Your Benefits: Essential Social Security Strategies for Singles
Shift From Employee to Investor Mindset with the Cashflow Quadrant Methodology by Robert Kiyosaki
Countless systems have been established that provide a much better understanding of what income generation is, how it can be used, and how individuals can organize their financial life as they work towards financial freedom. One of the more successful and better-known examples of financial education is the Cashflow Quadrant, the book by Robert Kiyosaki. Rich Dad’s Cashflow Quadrant was revolutionary for the way it organized money and helped people better learn how to increase their income. As the name implies, there are four quadrants within the Cashflow Quadrant. By mastering each of the four categories – or specializing in one – a person can increase their revenue stream and ultimately make more money.
Shift From Employee to Investor Mindset with the Cashflow Quadrant Methodology by Robert Kiyosaki
Retire Abroad and Still Collect Social Security? Avoid These 9 Countries Where It’s Not Possible
Dreaming of retiring to a sun-drenched beach or a quaint village? Many Americans envision spending their golden years abroad, savoring the delights of new cultures and landscapes. However, an essential part of this dream hinges on the financial stability provided by Social Security benefits. Before packing your bags and bidding farewell, it’s crucial to know that not all countries play by the same rules when it comes to collecting these benefits overseas. Here are the nine countries where your dream of retiring abroad could hit a snag, as Social Security benefits don’t cross every border. Avoid living in these countries so your retirement plans don’t get lost in translation.
Retire Abroad and Still Collect Social Security? Avoid These 9 Countries Where It’s Not Possible
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
Here are his recommended tools
Personal Capital: This is a free tool John uses to track his net worth on a regular basis and as a retirement planner. It also alerts him wrt hidden fees and has a budget tracker included.
Platforms like Yieldstreet provide investment options in art, legal, real estate, structured notes, venture capital, etc. They also have fixed-income portfolios spread across multiple asset classes with a single investment with low minimums of $10,000.
