Taking Your RMD in January vs. December: Which Strategy Makes Sense for You?

If you own a tax-deferred account like a 401(k) or traditional IRA, you must begin withdrawing from those accounts the year you turn 73 years old. These are called required minimum distributions (RMDs).

You must take your RMD by Dec. 31 to avoid penalties. The only exception is the year you turn 73, in which case you'd have until April 1 of the following year to take your RMDs. Failing to take your RMDs will result in a penalty of 25% of the amount you failed to withdraw. If your mistake is corrected within two years, the penalty may be reduced to 10%.

While some people choose to get their RMDs out of the way early in the year, others prefer to handle them at the last minute. Neither is right or wrong, but which route is best for you?

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Determining the amount of your RMD

The amount of your RMD is based on two things: your life expectancy factor (LEF) and your account value at the end of the previous year. The IRS provides your LEF for you based on your age.

Most people will use the Uniform Lifetime table for their LEF. However, if your sole beneficiary is your spouse who is more than 10 years younger than you, you'll use the Joint Life and Last Survivor Expectancy table.

For example, someone who's 75 years old and uses the Uniform Lifetime table has a LEF of 24.6. This means that if they had $1 million in a 401(k) at the end of 2025, their 2026 RMD would be $40,650.40.

Is it better to take your RMD early or late in the year?

By taking RMDs in January, you reduce the risk of forgetting them. You can take the RMDs early, set up automatic monthly distributions, and essentially treat it as a paycheck. It can also lower any anxiety that comes with trying to anticipate where the market may be in December when you're "forced" to take RMDs.

The biggest reason to take RMDs in December is to give your money and investments more time to (ideally) grow. Of course, this isn't guaranteed, but in years where the market performs well, waiting could mean thousands more in your account.

Luckily, you don't have to take all your RMDs in either January or December. Many people use a hybrid approach or choose to take their RMDs in monthly or quarterly installments. This can provide the best of both worlds in many cases: cash flow and leaving time for some of your investments to continue growing.

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