Is It Better to Take My RMD Later or Earlier in the Year?

People often think they don’t have any choice when it comes to taking the IRS-mandated required minimum distributions (RMDs) from their retirement accounts, but you do. While you can’t skip making these withdrawals, you can choose when and how to take the distribution, whether that’s at the beginning of the year, the end of the year or in a stream of monthly, quarterly or semi-annual payments. Each approach has its advantages and drawbacks, which are important to weigh to determine which makes sense for you. However, none will change the amount of your RMD, which is based on the value of your retirement accounts at the end of the previous year and your age.

A financial advisor can help you calculate and plan around your RMDs. Connect with an advisor for free.

How to Calculate Your RMDs

Your RMD is calculated using your account balance as of December 31 of the previous year and your life expectancy factor from the IRS Uniform Lifetime Table. To calculate your RMD, divide your account balance by the factor that corresponds to your age.

Plan your retirement withdrawals more effectively using our RMD calculator.

Required Minimum Distribution (RMD) Calculator

Estimate your next RMD using your age, balance and expected returns.

Quickly estimate your RMDs and when to take them

RMD Amount for IRA(s)

$--

RMD Amount for 401(k) #1

$--

RMD Amount for 401(k) #2

$--

About This Calculator

This calculator estimates RMDs by dividing the user's prior year's Dec. 31 account balance by the IRS Distribution Period based on their age. Users can enter their birth year, prior-year balances and an expected annual return to estimate the timing and amount of future RMDs.

For IRAs (excluding Roth IRAs), users may combine balances and take the total RMD from one or more accounts. For 401(k)s and similar workplace plans*, RMDs must be calculated and taken separately from each account, so balances should be entered individually.

^*The IRS allows those with multiple 403(b) accounts to aggregate their balances and split their RMDs across these accounts.

Assumptions

This calculator assumes users have an RMD age of either 73 or 75. Users born between 1951 and 1959 are required to take their first RMD by April 1 of the year following their 73rd birthday. Users born in 1960 and later must take their first RMD by April 1 of the year following their 75th birthday.

This calculator uses the IRS Uniform Lifetime Table to estimate RMDs. This table generally applies to account owners age 73 or older whose spouse is either less than 10 years younger or not their sole primary beneficiary.

However, if a user's spouse is more than 10 years younger and is their sole primary beneficiary, the IRS Joint and Last Survivor Expectancy Table must be used instead. Likewise, if the user is the beneficiary of an inherited IRA or retirement account, RMDs must be calculated using the IRS Single Life Expectancy Table. In these cases, users will need to calculate their RMD manually or consult a finance professional.

For users already required to take an RMD for the current year, the calculator uses their account balance as of December 31 of the previous year to compute the RMD. For users who haven't yet reached RMD age, the calculator applies their expected annual rate of return to that same prior-year-end balance to project future balances, which are then used to estimate RMDs.

This RMD calculator uses the IRS Uniform Lifetime Table, but certain users may need to use a different IRS table depending on their beneficiary designation or marital status. It's the user's responsibility to confirm which table applies to their situation, and tables may be subject to change.

Actual results may vary based on individual circumstances, future account performance and changes in tax laws or IRS regulations. Estimates provided by this calculator do not guarantee future distribution amounts or account balances. Past performance is not indicative of future results.

SmartAsset.com does not provide legal, tax, accounting or financial advice (except for referring users to third-party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). Articles, opinions and tools are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. Users should consult their accountant, tax advisor or legal professional to address their particular situation.

For example, if you’re 73 and your IRA balance was $500,000 on December 31, your divisor would be 26.5. Dividing $500,000 by 26.5 gives you an RMD of about $18,870 for the year. Each subsequent year, your divisor gets smaller, which gradually increases the percentage you must withdraw.

If you have multiple IRAs, you can withdraw your total RMD from one account or several of them. However, RMDs from 401(k)s must be taken separately from each plan.

Ways to Schedule Your RMDs

When it comes to scheduling your RMDs, you have a number of options. Some take the distribution as a lump sum, either at the start of the year or at the very end. Others opt to receive a steady cash flow throughout the year, taking RMD money on a monthly, quarterly or semi-annual basis.

Early in the Year Lump Sum

The “just get it over with” approach works for people who need the cash flow during the year. It helps avoid needing to borrow money or put expenses on credit cards, and paying the resulting interest. Another reason people take this approach is to put the cash into another investment right away, as long as it’s not a tax-advantaged retirement account.

On one hand, this approach guarantees that you won’t forget to take your RMD. But it also means all that money won’t be generating any additional gains in your retirement account, although you can deposit some or all of the cash to earn interest.

Monthly, Quarterly or Semi-Annually

This approach smooths your cash flow all year, which can be helpful if you’re using the money to pay your living expenses. It also keeps some of your RMD money in your investments for part or most of the year to generate new gains. With a quarterly distribution schedule, you can time the distributions and use the cash to cover your quarterly estimated tax payments on other income, as well as the RMD itself.

Late in the Year Lump Sum

If you don’t need cash to cover expenses earlier in the year, leaving your RMDs until the end of the year maximizes the potential investment returns on the RMD money. Plus, with this approach, you can withdraw a lump sum large enough to cover all your income tax for the year.

Tax Considerations

The schedule you use for RMDs won’t change the amount of taxes due on the distribution. However, your RMD schedule can affect your other taxes. If you make quarterly estimated tax payments based on your RMD amount and all of your other taxable income, you’ll lose the ability to use your tax money for the rest of the year.

But there is a trick that allows you to simplify your tax payments using RMDs and hold on to your tax money all year long. Here’s how it works: To avoid a penalty for underpaying your estimated federal taxes, you need to pay either 90% of your tax bill for the year or 100% of your tax bill from the previous year through withholding or estimated tax payments throughout the year. However, any taxes that are withheld from retirement account distributions are considered “ratable” (meaning, paid evenly throughout the year) no matter when the payment is made.

This means you can take your RMD late in the year when you can make the most accurate estimate of your tax bill and have that amount withheld from your RMD to cover your taxes for your RMDs and other income. This eliminates the hassle of making estimated payments as well as the risk of overpaying your estimated taxes.

Bottom Line

When and how often you take your RMDs during the year can help you manage your cash flow and maximize the potential investment gain of your RMD money before it’s withdrawn. Whether it makes sense to take your RMD all at once, either at the start of the year or the end, or in installments throughout the year, largely depends on how you plan to use the money. There are pros and cons to each method of taking RMDs, so weigh those carefully as well to find the solution for mandatory withdrawals that best suits your retirement situation.

Tips for Planning Your RMDs

Be sure to coordinate withdrawals across accounts. If you hold multiple traditional IRAs, you can take your total RMD from just one. However, 401(k) RMDs must be taken separately from each plan. Understanding these distinctions helps avoid penalties.
A financial advisor can help integrate your RMDs into an income plan based on your assets and spending needs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.