For investors with traditional retirement accounts, reaching age 73 signals the start of required minimum distributions (RMDs). This mandate compels retirees to begin withdrawing a minimum amount from their retirement savings annually to comply with tax regulations. Importantly, the first RMD can be postponed until April 1 of the year after turning 73. All subsequent RMDs must be withdrawn by December 31 of each year to avoid penalties.
Missing the deadline is costly. The Internal Revenue Service imposes a 25% penalty on any amount that is not withdrawn as required. To illustrate, if an individual’s RMD for a given year is $10,000, failing to take that distribution on time results in a forfeiture of $2,500 — a significant loss on what has typically been accumulated through years of diligent saving.
Although RMDs must be completed by year-end, investors have flexibility regarding the timing of withdrawing these funds. The decision to extract the RMD earlier or later in the year depends on several personal financial factors and investment considerations.
Benefits of Taking Your RMD Early
One of the primary advantages of taking your RMD early in the year is the peace of mind that comes with meeting the requirement promptly, thereby limiting the risk of incurring penalties. By addressing the distribution early, retirees can avoid last-minute deadlines and potential complications.
From a cash flow perspective, early RMD withdrawals can provide liquidity during the earlier months of the year, which may be advantageous for covering ongoing expenses or managing other financial obligations. Furthermore, if your current portfolio valuation is favorable, distributing the RMD earlier can lock in gains before any potential market downturn.
Investors concerned about market volatility might prefer to take their RMD when the market is performing well. Should the market decline later in the year, taking the RMD afterward would necessitate selling assets at a reduced value, potentially diminishing the effective withdrawal amount.
Advantages of Waiting to Take Your RMD
Conversely, deferring the RMD withdrawal until later in the year allows the funds to continue growing on a tax-deferred basis for a longer period. This can be particularly beneficial if there is confidence that the investments within the IRA or 401(k) will appreciate as the year progresses.
Additionally, waiting provides the opportunity to engage in more informed tax planning. For example, if an individual anticipates that their annual income might be higher than initially projected, they may consider executing a qualified charitable distribution to offset the RMD's taxable income, rather than taking the funds for personal use. Delaying the withdrawal offers a clearer view of total income, allowing for optimized decision-making to potentially reduce tax liabilities.
No Definitive Best Time to Take RMDs
There is no one-size-fits-all answer concerning the optimal timing for taking RMDs. Some may find it preferable to take the distribution early in the year — such as in January or February — to eliminate future uncertainty and meet compliance obligations promptly. Others might opt to delay the withdrawal to harness potential investment growth and employ strategic tax management.
Importantly, those opting to wait should implement a reliable calendar reminder early in December to ensure the withdrawal occurs before the legal deadline. This measure reduces the risk of oversight and protects against the substantial penalties associated with missing RMD deadlines.
Conclusion
Choosing when to take a required minimum distribution in 2026 depends on individual circumstances including cash flow needs, market outlook, and tax considerations. Early withdrawal emphasizes security and cash availability, whereas postponement favors potential tax advantages and investment growth. Prudent planning and timely action are essential to maximize the benefits and comply with mandatory regulations.