Retirees Risk 25% Penalty in 3 RMD Mistakes After Age 73 or 75

Q: With 2026 charitable limits rising, could redirecting your mandatory withdrawals completely erase your impending IRS penalty risk?

No. Redirecting required minimum distributions to charity through a qualified charitable distribution, or QCD, can sharply reduce or even eliminate the tax hit from an RMD, but it does not erase the risk of an IRS penalty if you miss the deadline or do the transfer incorrectly. The key point is timing and mechanics. An RMD shortfall can trigger a 25% excise tax on the amount not withdrawn, potentially reduced to 10% if corrected promptly within the IRS correction window. A QCD helps only if it is completed on time and sent directly from the IRA custodian to an eligible charity. If you take possession of the money first, it generally becomes a taxable distribution, not a QCD. The higher 2026 QCD limit — generally $111,000 per person, indexed for inflation — gives retirees more room to cover all or part of a large IRA RMD without adding that amount to taxable income. For charitably inclined retirees, that can be a powerful planning tool. It may also help reduce adjusted gross income, which can affect Medicare premiums and Social Security taxation. But QCDs are available only from IRAs, not directly from 401(k)s, unless assets are first rolled into an IRA. They also cannot be sent to donor-advised funds, private foundations, or supporting organizations. So the rising charitable limit can help offset taxable income from mandatory withdrawals, but it does not by itself wipe out penalty exposure. The real protection is making the QCD correctly and before the RMD deadline.

3 articles · Updated · Yahoo Finance · Aug 22

A missed required minimum distribution can trigger a 25% penalty: skipping a $20,000 withdrawal by Dec. 31 could cost $5,000, making automatic IRA or 401(k) payouts a key safeguard.
April 1 deferral for a first RMD can backfire because it forces two withdrawals in the following year, potentially pushing retirees into a higher tax bracket.
QCDs offer a tax-saving alternative for retirees who do not need the cash: directing an IRA distribution straight to charity can satisfy the RMD without adding taxable income.
Traditional IRAs and 401(k)s deliver an upfront tax break, but mandatory withdrawals begin at age 73 or 75 depending on birth year, turning timing and account strategy into a central retirement-planning issue.