Ask Liz Weston

Get smart with your money

Retirement

Q&A: Broker made mistake calculating RMDS

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Dear Liz: While preparing our 2025 taxes, I noticed that our brokerage doubled the required minimum distributions for my husband and me for 2025. I called, and they said they were “running two systems” and sent a notice to investors to look for any problems. I do not recall ever receiving such a notice. Also, I did not notice the increase, as the bank used for these direct deposits also has multiple CDs, and the account is a “rainy day” fund that we use only for emergencies.

This money moved us into another tax bracket and we will be hit with a big tax bill. Also, we have lost out on future returns from the money that was distributed rather than left alone to grow. What is the brokerage’s responsibility? Do we just have to bite the bullet and pay the taxes on a mistake?

Answer: You had a 60-day window to return the excess withdrawal to your retirement accounts without incurring taxes, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

Assuming that window has passed, you can consider making a claim against the brokerage firm for the higher taxes and lost earnings. Start by making a written complaint to the brokerage firm’s compliance department. If you don’t get satisfactory results, you can file a complaint with the FINRA, the Financial Industry Regulatory Authority, at https://www.finra.org/investors/need-help/file-a-complaint.

Unfortunately, the IRS holds taxpayers responsible for correctly calculating and taking RMDs, even when their brokerage firms make mistakes. You would be wise to put reminders in your calendar to check your brokerage’s calculations as well as the actual distributions while you still have time to correct any errors. You may also want to consider consolidating your finances to make it easier to monitor your accounts.

Q&A: Should I draw down my 401(k) before accepting Social Security?

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Dear Liz: I am a 66-year-old single male working part-time (not by choice, but it’s the best I can get). I earn about $24,000 per year plus another $4,000 in unemployment during the summer. Work provides healthcare, so I don’t have Medicare premiums yet. With fixed expenses at roughly $50,000 per year, I am withdrawing from my 401(k) to cover the gap until I reach full retirement at the age of 70. If they will let me, I hope to continue to work until 75 because I love my job. At this rate, I will have exhausted the 401(k) by age 70, leaving me with a $100,000 CD earning 4%. Am I right to use the 401(k) as a bridge to full Social Security?

Answer: The advantages of delaying Social Security are typically so great that financial planners often recommend tapping other resources, including retirement funds, if that allows you to put off your application. Social Security’s delayed retirement credits boost your payment by 8% each year between your full retirement age and age 70, when benefits max out. A maxed-out payment is a powerful hedge against longevity risk, which is the danger of living so long that you deplete your savings.

However, a financial planner probably would suggest you also look for ways to decrease your living expenses to avoid completely exhausting your retirement accounts. As you’ve discovered, older people can have a harder time staying employed, even when their health cooperates. You may not be able to work as long as you’d like, and the average Social Security check is closer to $2,000 than the $4,000 or more you would need to meet your fixed expenses.

Consider seeking out a fiduciary financial advisor who can review your situation and offer personalized advice. Your employer or 401(k) provider may offer access to such advisors, or you can look for a financial coach or accredited financial counselor affiliated with the Assn. for Financial Counseling & Planning Education at www.afcpe.org.

Q&A: Could spouse’s early start stunt Social Security survivor benefit?

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Dear Liz: My husband and I plan to delay taking Social Security retirement benefits until the higher-earning spouse is 70. This is to ensure the highest possible survivor benefit. However, the lower-earning spouse will be turning 62 at the same time that the higher earning spouse turns 70. We are concerned that the lower-earning spouse’s future survivor benefit will be reduced if the lower earner starts benefits early. When would be the best time for the lower-earning spouse to take retirement benefits and ensure that the survivor’s benefit remains the same?

Answer: The lower earner won’t reduce the survivor benefit by starting early, but they will permanently reduce their own benefit or any spousal benefit they’re owed. Most people are better off waiting at least until their full retirement age to start Social Security benefits so they can avoid this reduction.

Q&A: How to fix a mistaken contribution to an IRA

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Dear Liz: When I retired, I had a small 401(k) with about $12,000 in it. Instead of rolling that money into an IRA, I took a distribution and paid taxes on it. I had no immediate need for the remaining funds, so eventually I opened a new IRA account and deposited the money.

I now realize I should have put it in a Roth IRA so I wouldn’t face double taxation on the money. This is the stupidest thing I’ve done in recent memory. Is there any legal mechanism I can use to get that money out and into a Roth without paying taxes the second time?

Answer: You made a mistake, but probably not the one you think.

You can’t contribute to an IRA — or a Roth IRA, for that matter — if you don’t have earned income. So if you’ve fully retired, you should contact your IRA administrator and let them know you need to withdraw your “excess contribution” as well as any earnings the contribution has made.

If you contributed this year, you have until your tax filing deadline — typically April 15, 2026 — to remove the funds without penalty. If you contributed in a previous year, you’ll typically face a 6% excise tax for each year the money remained in your account.

Now, a warning about financial mistakes: They tend to become more common as we age. That can be incredibly unsettling, especially to do-it-yourselfers used to handling finances competently on their own. Retirement is a good time to start implementing some guardrails to protect ourselves and our money.

Hiring a tax pro would be a good first step. Anything to do with a retirement fund should be run past this pro first to make sure you’re following the tax rules.

Q&A: I’m 59 with no retirement savings. What now?

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Dear Liz: I’m 59. In 8 years, I will qualify for an average Social Security income. I have no retirement saved and am not a homeowner but I have been blessed with a modest inheritance. What financial advice would you give in this situation?

Answer: The most powerful action you can take for your future retirement is to delay your Social Security application as long as possible, preferably waiting to apply until your benefit maxes out at age 70.

Each year you delay after your full retirement age of 67 will add 8% to your checks — a guaranteed return that can’t be matched anywhere else. You also don’t have to worry about missing out on inflation adjustments, since those are added into your benefit starting at age 62 whether or not you’ve applied.

Applying early stunts your benefit for life. The longer you live, the more likely you are to run through your other savings, so a maximized Social Security benefit is the ultimate longevity insurance.

If you’re married and the higher earner, your benefit also determines what the survivor will get after the first spouse dies.

Other smart moves would be to start saving what you can for retirement and get your inheritance invested properly, so that your money continues to grow. Consult a fee-only financial planner or an accredited financial counselor for help.

Q&A: How to avoid or reduce taxes on required minimum distributions

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Dear Liz: I’m confused about required minimum distributions from my retirement accounts. I’d like to avoid taxes on my withdrawals, but it seems there is no way to avoid them. Please give me some guidance.

Answer: If you got a deduction for contributing this money, and you want to keep the funds you’re required to withdraw, then yes, you have to pay taxes on these distributions.

Required minimum distributions from retirement accounts currently have to start at age 73. There are a few exceptions. Roth accounts don’t offer deductions on contributions and also don’t have RMDs. You can postpone RMDs from a workplace plan such as a 401(k) or 403(b) as long as you’re still working for the employer that sponsors the plan, the plan offers this “still working” option, and you don’t own 5% or more of the company.

If you don’t need the money, you could consider donating your required minimum distribution to charity. Known as “qualified charitable distributions,” these donations can start as early as age 70½. As long as the money goes directly from an IRA to a qualified nonprofit, you can avoid paying taxes on the distribution. For 2025, the maximum qualified charitable distribution is $108,000 per individual. (You can’t make a qualified charitable distribution from a workplace plan, but you can roll some or all of the account into an IRA and make the donation from there.)

Sometimes RMDs can be large enough to catapult savers into a higher tax bracket and trigger higher Medicare premiums. If that’s the case, and you’re still a few years away from starting RMDs, consider talking to a tax pro about ways to manage the tax bill. Starting distributions early or converting some funds to a Roth IRA might be options.