Nearly every investor understands that, eventually, they will be required to take distributions from their tax-deferred retirement savings. Depending on when you were born, this may be at age 73 or 75. The amount you must withdraw is based on your account balance as of December 31 of the previous year and a Life Expectancy Factor derived from the IRS Uniform Lifetime Table, Joint Life and Last Survivor Table, or Single Life Expectancy Table, depending on the circumstances of the account owner or beneficiary.
Coordinating the start date and amount of your required minimum distributions (RMDs) is complicated enough, but RMDs are required annually thereafter. After that first year, the question we hear most often is, “What time of year should I take my RMD?“
While we never advocate for timing the market, timing your RMD is different. First, you must withdraw the same minimum amount regardless of when you take it during the year. Second, you will owe the same amount in taxes on the withdrawal. Since you cannot predict the market’s performance for the year or anticipate potential tax law changes, deciding when to take your RMD comes down to when you need the money and how you plan to use it.
You can take as many withdrawals as you like throughout the year, providing you withdraw at least the minimum amount required. Some investors prefer simplifying their budgeting by withdrawing monthly, mimicking a paycheck.
Others choose to withdraw at the beginning of the year, making an in-kind transfer of equities to a brokerage account. This strategy reduces the balance in the tax-deferred account, potentially lowering future RMDs by limiting the amount that can appreciate throughout the year. Alternatively, you may prefer to keep funds in the IRA for as long as possible, withdrawing at the end of the year to maximize tax-deferred growth.
If you follow the Henssler Ten Year Rule, any money you need for spending—including your RMD—should be in fixed-income securities that mature around the time you withdraw. If you don’t need to spend your full RMD, you can keep a portion invested in equities to capture growth opportunities. In this case, you could do an in-kind transfer, moving equities from your IRA to an after-tax brokerage account.
Ultimately, the timing of your RMD is a personal preference. If you rely on the funds for living expenses and prefer a steady income stream, periodic withdrawals throughout the year may be ideal. Withdrawing at the beginning of the year provides immediate access to cash and a financial cushion for emergencies; however, that may require careful budgeting to ensure your funds last the full year.
Some investors prefer to take their RMD at the end of the year, allowing their balance to grow tax-deferred for as long as possible. By year-end, you should have a clearer picture of your tax situation and may want to consider a Qualified Charitable Distribution (QCD) to satisfy part or all of your RMD while reducing taxable income.
In the grand scheme of retirement planning, the timing of your RMD within the year is unlikely to result in a significant difference in your overall wealth. It ultimately comes down to how you prefer to manage your cash flow.
If you have questions on your required minimum distributions, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the February 15, 2025 “Henssler Money Talks” episode.
This article is for demonstrative and academic purposes and is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
