Is it better to take your RMD earlier or later in the year?
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Mike Bernard, CFP® offers advisory services through KFG Wealth Management, LLC dba Korhorn Financial Group. This information is for general financial education and is not intended to provide specific investment advice or recommendations. All investing and investment strategies involve risk, including the potential loss of principal. Asset allocation & diversification do not ensure a profit or prevent a loss in a declining market. Past performance is not a guarantee of future results.
Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks….(read more)
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When it comes to taking required minimum distributions (RMDs) from your retirement accounts, the timing of when you choose to take them can have a significant impact on your finances. RMDs are annual withdrawals that individuals are required to take from their retirement accounts once they reach a certain age, typically beginning at age 72 for traditional IRAs and 401(k) plans.
One common question that many retirees face is whether it is better to take their RMDs early in the year or wait until later in the year to do so. There are pros and cons to each approach, and the best decision will depend on your individual financial situation and goals.
Taking RMDs early in the year can have several benefits. By withdrawing the required amount early, you can minimize the risk of forgetting to take the distribution altogether, which could result in significant tax penalties. Additionally, taking RMDs early can give you more time to plan how you will use the funds, whether it be reinvesting them, paying bills, or making charitable donations.
On the other hand, waiting until later in the year to take your RMDs can also have its advantages. By delaying your distributions, you can keep your money invested for a longer period of time, potentially allowing it to grow and generate more income. This can be especially beneficial if you do not need the RMD funds immediately for living expenses.
Another benefit of waiting to take RMDs is that it can provide you with more flexibility in terms of tax planning. By waiting until later in the year, you may have a better idea of your overall tax situation and can strategically time your distributions to minimize the tax impact.
Ultimately, the decision of whether to take RMDs early or later in the year will depend on your unique financial goals and circumstances. It may be helpful to consult with a financial advisor or tax professional to determine the best approach for your individual situation.
In conclusion, whether you choose to take your RMDs early or later in the year, it is important to remember that failing to take your annual distribution can result in significant tax penalties. Therefore, it is crucial to carefully plan and execute your RMD strategy in order to maximize your retirement savings and minimize tax implications.
Another possible reason for taking an RMD early in the year would be the intent to purchase a promising stock believed to peak in the current (or subsequent) year/s. Holding such a stock in a brokerage account (instead of a tax-sheltered account) may make for better tax planning. This strategy is best for aggressive retirees whose basic needs are adequately funded by secure sources like social security, annuities, pensions.
This is a very underrated channel!
Hi, do you have a one time fee to look at how I can save for taxes? I’m 71 years old and I’ll be taking RMD in 2 years. Thanks.
When you take the RMD, is the amount reported to the IRS as having been withdrawn on X date? Or, if you take the RMD as a lump sum late in the year, do you file Form 2210 to show that estimated taxes weren’t owed early in the year?
If you die during the year it makes things a little smoother if the RMD for the year has already been withdrawn. Also the holidays are a busy time so it’s easy to forget if you leave it to the end of year. Some custodians will automatically distribute the RMD monthly in 12 installments so that’s another convenient option.