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It’s a new year and another RMD. My practice has been to wait until October to begin withdrawals with QCDs and then the balance before year end. My thinking is to let the funds keep growing, but of course the opposite is possible.
Is there a better way? Should RMDs be taken early in the year, periodically throughout the year?
Any thoughts?
For those IRA owners with a required minimum distribution who are in poor health I would encourage them to consider a early in the year RMD. A common tax headache for a surviving spouse or other beneficiaries can occur when the IRA owner dies before taking their RMD and then in the year of death the decedent’s un-taken RMD is also not taken timely by the beneficiary(s). The result is often needless correspondence with the tax authorities at a minimum or a possible tax penalty for a failure to take a timely RMD. For poor health and late in life IRA owners I put taking a early in the year RMD in the bucket of the things to do to make life easier for your beneficiaries.
Thanks for your input. Never thought of that.
Think this is a situation where One Size fits all just doesn’t work.
More a failure to plan is a plan to fail situation.
You’ll shudder, Dick, when you read that I’ve been taking periodic withdrawals even before RMDs, which just began for me in 2024. I take a monthly withdrawal to cover my mortgage (yes, I have a small monthly mortgage that I could pay off but haven’t). I also use the IRA to fund large discretionary expenses, like the basement finishing project in 2023. I just found out that for 2025, my RMD beyond the amount used for my mortgage is almost exactly what I have decided to pledge to my church this year. I’m waiting for my checks to arrive so I can begin monthly donations as a QCD – which I learned about right here.
Nothing wrong with that, that’s what the IRA is for, to provide the income you need.
Remember the QCD must be a check directly from your IRA made out to the charity. You can’t write your own check.
We take RMDs early in the year but even though basically retired at 76(myself) and 79(my Wife) I work part-time as a research librarian at our local library. Thus, I still have an income and use the RMD to fund our ROTH IRAs for each year as soon as they are dispersed. With what is left over, we fund the grandkids and great-grand kids 529s. So it all stays sheltered even though there are taxes removed from the total amount.
I take RMD distribution on a monthly basis. One reason is for even cash flow throughout the year. Second reason is, as noted by another commenter, is reverse dollar cost averaging.
One drawback with spreading out the RMD payments occurs if you also want to make a Roth conversion during the year. No Roth conversion can be done until after the entire RMD distribution for the year has been completed. To do a Roth conversion and to take monthly RMD payments in the same year requires completing the installment payments before making the Roth conversion by spreading the full RMD amount out over fewer than 12 months.
That’s an interesting wrinkle. But I don’t think you have to spread over fewer than twelve months. If you have your RMD come out in the first week of the month, you have plenty of time left in December to do a Roth conversion. Unlike a QCD, you don’t have the concern of it actually getting paid to the recipient in time, tracking down a receipt letter, etc.
That is correct. I was not as precise as I should have been.
QCDs early in the year, so you have plenty of time to chase after the required receipts for the donations, and RMDs late in the year.
I have been taking my parents inherited IRA RMDs quarterly after once early into the withdrawls trying to market time and got burned. If figure this technique is sort of like dollar cost averaging in reverse. I figured monthly seemed too frequent.
Not sure this works for quarterly withdrawals. If you sell the same dollar amount, you’re guaranteed to sell more shares when the price is lower.
Several thoughts:
1. If a retiree is carrying 3-5 years of cash (or more) so as to avoid selling equities in a downturn, then the cash is available, and one can take the RMD at any time they wish.
2. Will the RMD provide better returns in the retirement account than in a brokerage or MM fund, etc.?
3. If one is subject to Federal quarterly withholding, that could be an incentive to delay the RMD.
4. If one carries little or no cash in a retirement account subject to RMD, then saving any dividends, interest and gains in a sheltered account for as long as possible would seem to make sense.
5. RMDs can be disbursed over the calendar year. There is no requirement to take all in one withdrawal.
I tend to take the RMD earlier. I’m carrying a number of years of income as cash or cash equivalents in my retirement accounts. Unless we have a “project” or unusual expense, I’ll save some of the RMD withdrawal in a MM fund or I-bonds, etc. and the rest as equities in a brokerage account. I may purchase equities in that brokerage account after running my numbers and re-evaluating allocations. I usually don’t spend the entire RMD in any one calendar year, unless there are unusual expenses.
I retired about seven years ago and RMDs will begin for us next year. Until then, to manage my taxes and postpone eventual IRMAA I have taken distributions from my IRA and also from a taxable brokerage account. When I tap the IRA, I withdraw from a money market account near year end so that the interest earned during the year remains tax sheltered, and it is replenished via rebalancing. Of course, now the full year’s withdrawal will earn taxable interest well into the next year. I wonder if some take monthly IRA distributions to minimize this?
I have been taking from cash too, but 2025 will likely be that last. The RMDs are getting too large for the cash acquired to keep up.
I keep wishing for a market crash on 12/31 and a 24 hour recovery, but so far no luck😎
Waiting until at least October if not later makes sense to me. More times than not, your IRA/401(k) balance should continue to grow during the year. And, since you’ll make one larger estimated tax payment toward the end of the year instead of four quarterly ones, your taxable accounts can continue to grow through the year as well.
What I usually do is take sufficient withholding from the RMD to cover those taxes plus taxes on interest, dividends and capital gains from all accounts.
This is what I plan to do.