The 3 Biggest Tax Mistakes to Avoid in Your 70s
Don't stop tax planning when RMDs start. Making these common tax mistakes in your 70s can result in needlessly generous payments to the IRS.
Jim and Mary, now 76, had been taking their required minimum distributions (RMDs) for several years and were quite diligent in following the RMD rules. But as it turned out, their "rule following" wasn't doing them any favors.
I asked these new clients to bring in their tax return for a review.
"How do you take out income and RMDs each year?" I asked them.
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"Well, we don't need the income," Jim replied, "but we have to take out the RMDs. Each January, we called our previous investment adviser and sent the RMD to our bank account. I know other people wait until December, but we never want to miss a year."
"Then in December each year, Mary and I figure out which charities we want to donate money to and we generally give away our full RMD each year, since we don't need it ourselves. We keep records of it all to give our tax person so we get our tax deduction."
I asked Jim and Mary if either of those advisers had introduced them to the concept of qualified charitable distributions (QCDs), or if they had ever figured out how much of their charitable giving was actually tax deductible.
"We haven't heard about QCDs," they replied, "and isn't all of our charity tax deductible anyway?"
"A QCD is available once you turn 70 ½," I told them. "You can then have your IRA custodian send money directly to an eligible charity. The distribution doesn't show up as taxable income to you, but it still counts towards your RMD amount."
It turns out that despite giving $10,000 a year — their whole RMD — Jim and Mary weren't getting even one dollar in a charitable deduction, because they weren't itemizing.
They had missed out on $2,200 in tax savings in both 2021 and 2022, and neither of their trusted advisers had told them.
Jim and Mary thought they were doing the right thing. They got all the right forms, took care of their RMDs and tracked all their donations.
They also thought their days of high taxes and complicated returns were over, so they were paying less attention to their tax situation.
But like many retirees, they were unwittingly making more of their Social Security taxable, paying more in taxes because of how they were giving to charity, and failing to plan for the future tax changes the surviving spouse was likely to face.
Here are the three biggest tax mistakes I see people making in their 70s — often because they assume that once RMDs begin there is nothing left to plan for tax-wise.
1. Treating your RMD as an isolated event, not part of your retirement tax plan
Jim and Mary were quite focused on meeting the RMD rules — even doing the calculations and distributing the RMD in January, much earlier than most.
What they weren't doing was seeing how their RMD fit into their retirement tax plan.
For them, making use of QCDs would have met their goals and lowered their taxes significantly.
For others, using RMDs to do tax withholding, instead of estimated payments might work better.
2. Assuming you're 'too old' for Roth conversions once RMDs begin
I must have heard it a thousand times over the past 23 years as a financial adviser: "My CPA says I'm 'too old' to do Roth conversions."
Thankfully, there are no age limits with Roth conversions, and beginning your RMDs doesn't stop you from doing them.
If they are a good idea — because they're projected to save you, your widowed spouse or your heirs on the total taxes paid from your IRA — your age shouldn't be a factor in your decision.
You do need to follow some extra rules, though, once you hit RMD age:
- You cannot convert your RMD
- You must satisfy your RMD before you do a Roth conversion
Jim was a retired pastor, and the income tax treatment from his minister pension was going to change if he died first. Mary would thankfully get the same amount, but now it would be all taxable instead of nearly tax-free.
Once we helped them meet their RMD obligations, we found the right amount for them to convert to their Roth IRA each year so Mary could start building up tax-free money, assuming the Roth IRA distribution rules were met, for when her tax situation changed after Jim's passing.
3. Giving to charity but missing out on tax benefits
Jim and Mary were quite generous giving to the charities they supported, but they were also quite generous to the IRS. They were overpaying their taxes by $2,200 each year just because they got the sequencing wrong with their giving.
Once they sent their RMD to their bank account, they weren't able to later count that distribution, or the gifts they personally sent out, as a QCD. To meet those rules, they needed to have the money go directly from their IRA to an eligible charity.
Like many other retirees I've seen over the years as a financial adviser, they thought it really didn't matter since they would get a tax deduction anyways.
But there are two other factors they forgot about.
Because the RMD payout showed up as taxable income, it made more of their Social Security taxable. In 2026, that could also cause someone to miss out on part of the enhanced senior deduction.
Because the standard deduction level is so high now, many retirees think they are getting itemized deductions when they aren't.
There is now a charity deduction for non-itemizers that helps you deduct up to $1,000 for single and $2,000 for married filing joint taxpayers in 2026, but Jim and Mary were giving well beyond that number.
They were keeping great tax records for their $10,000 in charitable donations, but they weren't getting the large tax break they thought they were.
Tax planning doesn't stop in your 70s
The underlying problem in each of these three mistakes is that the decision was made in isolation, not in coordination.
There's nothing wrong with taking care of your RMDs, doing Roth conversions or giving to charity and keeping track of your donations.
Where Jim and Mary went wrong was treating their RMDs as a get-it-over-with transaction, not as a part of their larger retirement puzzle.
Putting those individual retirement, investment and tax decisions into the right place in the puzzle can help you avoid tax mistakes not just in your 70s, but before and after.
That's why I developed the 5-step "Retirement Master Plan" process, which you can learn about in my book Retire Today.
Many people hit their 70s thinking their tax planning days are behind them. That's the kind of stuff you do when you're working and saving for retirement, right?
Nope. Don't fall into the trap of thinking that the start of your RMD years means the end of your tax planning years.
When you hit your 70s, the IRS starts choosing the minimum amount that has to come out of your IRA each year. But it doesn't choose your charitable, tax withholding, investment and Roth conversion strategies.
With thoughtful planning, and a coordinated retirement process, you can still make tax planning choices in your 70s that help you avoid common mistakes.
Related Content
- Year-End RMDs: 10 Ways to Invest, Spend or Donate Them
- The 7 RMD Tax Traps Waiting for You in Your 70s — and How to Start Disarming Them in Your 60s
- QCDs Are a Tax-Smart Way for Retirees To Donate to Charity
- The 3 Biggest Tax Mistakes Retirees Can Make in Their 60s: One Involves Roth Conversions
- Just Retired? This Could Be Your Once-in-a-Lifetime Opportunity to Lower Your Lifetime Taxes
