Avoid These Common RMD Mistakes With Your Self-Directed IRA

No one wants to make a mistake in retirement planning. After all, one simple mistake at the age of 40 can have wide-reaching reverberations by the time you’re ready for retirement at 60, 70, or even older. But that logic also applies on the back-end of retirement, too: the time in which you have to take RMDs (required minimum distributions) from your Self-Directed IRA. You’ve worked hard for this money, and now it’s time to preserve that money by doing things the right way. With that in mind, let’s explore some key concepts so you can avoid common RMD mistakes when it’s time to take your money out.

Mistake #1: Not Understanding When and How RMDs Apply

One of the most common (and most costly) mistakes is simply misunderstanding when RMDs kick in, or assuming you can put them off indefinitely. The funny thing? RMDs vary depending on when you were born. For instance, the IRS requires most account holders to begin taking RMDs at age 73 (or age 75 if you were born after 1960).

That means every year, you’ll need to withdraw a specific, IRS-calculated amount based on the value of your account. With a Self-Directed IRA, this calculation can be a little more complicated because you might hold alternative assets like real estate or private notes that don’t have a simple market price attached to them.

The danger comes when investors wait until the last minute or assume their custodian will handle everything for them. If you miss the deadline or take out too little, the IRS can impose a penalty of up to 25% on the amount you should have withdrawn — a penalty no retiree wants to pay. The good news? With proper planning, you can stay well ahead of the deadline and make sure you’re taking exactly what you need each year.

Mistake #2: Miscalculating or Taking the RMD From the Wrong Account

Another frequent error is miscalculating your RMD amount or withdrawing from the wrong IRA. If you have multiple IRAs, you can take the total RMD from one account, yes. But you still have to calculate the correct amount based on the combined balance of all IRAs. For Self-Directed IRAs that hold real estate, private equity, or other hard-to-value assets, it’s easy to underestimate their worth or end up taking out less than required.

The IRS doesn’t offer much grace for errors here. If you under-withdraw, you face the same steep penalty as if you had not taken an RMD at all. The safest approach is to work with a qualified custodian who can help with valuations and calculations, and to double-check the numbers yourself before taking any distribution. Setting a reminder early in the year gives you time to get valuations in order. You can also avoid last-minute stress and protect your retirement nest egg.

Mistake #3: Waiting Until the Last Minute

Procrastination might not seem like a big deal until December rolls around and you realize you still have to calculate, value, and withdraw your RMD before the deadline. Waiting until the last minute can cause unnecessary stress, rushed decisions, and, in some cases, missed deadlines. That is when the IRS penalty becomes a very real problem. The solution is simple: plan ahead. Start working on valuations early in the year, confirm your RMD amount well before December, and set a calendar reminder to take the distribution on time so you can relax and enjoy your retirement income.

If you’re ready to think about Self-Directed IRAs, maybe it’s time to get set up the right way. Reach out to us here at American IRA at 866-7500-IRA today.