Is Taking Your Required Minimum Distribution (RMD) in January a Smart Move?

Are you someone who likes to get things done sooner than later? If so, and if you're going to be 73 or older at any point in 2026, you may be itching to take your required minimum distribution from your IRA sometime this month. And maybe that's the right call for you.

There should be some strategic thinking behind the timing of your decision, though. It could be wiser to wait, even if doing so feels a bit uncomfortable.

But first things first.

What are RMDs, and how do they work?

If you're not familiar, a required minimum distribution, or RMD, is an IRS-mandated taxable withdrawal from most types of ordinary retirement accounts. (Roths aren't subject to these rules, of course, since withdrawals from Roth IRAs aren't taxable.)

These distributions aren't required until the year you turn 73. Once you do reach that age, however, you're required to make annual withdrawals before the year ends. The one exception is your very first one. You've got until April 1 of the year after you turn 73 to complete that RMD. You probably won't want to do that, though, since it will mean taking two taxable distributions in the same tax year.

But what's the minimum? It depends on your age and the value of your retirement accounts as of the end of last year. The older you are, the greater the percentage of your retirement savings that must be withdrawn. For instance, you'll only need to withdraw a little less than 3.8% of these assets for the year in which you turn 73. If you're 85 years old, though, your required distribution is 6.25% from your eligible retirement accounts. At 100, the percentage is a little over 15.6% of the prior year's ending account balance. Your brokerage firm or IRA's custodian can supply you with the year-end values of your retirement accounts held with them. But you'll need to determine your own RMD using calculation worksheets provided by the IRS.

Of course, while there's a minimum, there's no maximum limit to how much you can withdraw. Just don't forget that bigger RMDs come with bigger tax bills.

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There's also some flexibility with how your required minimum distributions are taken. If you happen to own more than one ordinary IRA, for instance, you can combine their total year-end values and then take the total calculated distribution from just one account. The same goes for 403(b) accounts if you hold more than one, although for RMD purposes, you can't mix and match traditional IRAs with 403(b) accounts.

This flexibility doesn't apply to 401(k) accounts, though; if you happen to have more than one, you'll need to determine and withdraw an RMD for each one. One key exception here is if you're still working and actively contributing to a 401(k) plan. You won't need to take a required distribution from that particular 401(k) account even if you're required to take an RMD from previous employers' 401(k) plans.

Just keep in mind that the IRS doesn't see or treat an IRA funded by a rollover from a 401(k) like a 401(k). Rollover retirement accounts are subject to the same required minimum distribution rules and options as traditional IRAs.

But the question remains: Is taking your RMD in January of this year, or in January of any year, a smart move?

Think strategically

The timing of your RMD depends on several factors, some of which may be more relevant to you than others. For instance, if you don't actually need cash and would rather transfer existing assets from a retirement account into a conventional brokerage account and simply hold them there -- yes, that's an option too, called an in-kind transfer -- you only need to instruct your IRA's custodian to do so. It will inform you of your exact taxable RMD as of the day the transfer is complete.

For most investors, though, since an RMD will probably be made with cash resulting from the sale of stocks, bonds, or funds and provide at least some of your needed retirement income, the timing of your required distribution should be optimized. In other words, you'll want to sell any assets nearer a high than a low, allowing you to leave more assets in the retirement account to continue growing tax-free. Remember, an RMD is only a dollar amount determined at the end of the previous year. The IRS doesn't care how or when you come up with the money -- it only cares that you complete your RMD before the year-end deadline.

So in answer to the question, with the S&P 500 now at record highs following a 40% run-up since April and seemingly overdue for a correction, this month certainly isn't a bad time to take your RMD.

On the surface, this seems like the sort of market timing that investors aren't supposed to do, since timing the market is notoriously difficult. The S&P 500 could certainly be higher a few months from now than it is at this time, as is the market's natural tendency.

That's not quite what this would be, however. This is more of a risk-management strategy.

If it helps, though, you can hedge your bet and stagger your required distribution over the course of the year ahead. This approach will work equally for and against you, but in the end, it averages out any exits you make to something around the S&P 500's midpoint for the year. You could certainly do worse.

The biggest risk? Waiting as long as possible on the hope that you'd be selling any stocks at their highest point of the year. Every day you wait, that window closes just a little bit more. You could end up running out of time before making the exit you were holding out for.

Don't be in too much of a hurry just yet, however. You've still got over 350 days to make the decision.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.