Retirees, This End of Year Error Could Cost You Big, Says Vanguard Study

The end of the year is near and you might be busy stocking up on gifts and planning visits to family and friends. But retirees should keep another year-end deadline in mind: taking required minimum distributions, or RMDs.

New research from Vanguard estimates that missed RMDs could cost retirees up to $1.7 billion annually.

Starting at age 73, investors must take RMDs, which are required annual withdrawals from accounts like 401(k)s and traditional IRAs. (Though if you’re still working and have a 401(k) plan through your current employer, you don’t have to take RMDs from that account yet.)

By looking at data of Vanguard traditional IRA holders, the researchers found that 6.7% of RMD-eligible investors missed taking them in 2024. The average RMD amount was $11,600, which means individuals could incur a penalty of $1,160 or $2,900, assuming a 10% or 25% penalty, respectively.

Vanguard notes there are 8.7 million IRA holders nationwide. “Scaling our missed-RMD rate of 6.7% and applying our average tax penalty of $1,160 to $2,900, we estimate that 585,000 IRA holders miss their RMDs annually, with the total potential tax penalties ranging from $678 million to $1.7 billion each year,” the researchers wrote.

So if you’re age 73 or older, you should look into the RMD rules as soon as possible—otherwise you may be at risk of paying a hefty penalty.

For those who turn 73 this year, you’ll have until April 1, 2026 to take your first RMD.

However, if you’re age 74 or older, you have until the end of the year—December 31, 2025—to take your RMDs. If you don’t take an RMD by the deadline, you risk incurring a penalty of either 10% (if you eventually take the RMD within two years) or 25%.

“Reducing the rate of missed RMDs by even a modest amount could save investors hundreds of millions of dollars each year,” said Andy Reed, head of behavioral economics research at Vanguard.