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

Is the IRS forcing you to make a withdrawal from a retirement account this year? If you're going to be at least 73 years old at any point in 2025 and you've also got some money in an ordinary, non-Roth IRA, then yes -- you're required to take some of this money out of at least one of these retirement accounts. It's called a required minimum distribution, in fact, or RMD. It's just a question of when.

With that as the backdrop, if you're just looking to get it done, is July a good time to take care of this business? For some investors it doesn't really make much difference at what point in the year it happens. For other investors, though, timing can matter, making July a particularly good month to complete your 2025 RMD. Here's why.

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What's an RMD?

It's not terribly complicated. All those tax-deductible contributions to individual retirement accounts that are allowed to grow tax-free? The IRS is eventually coming for its cut. At the risk of sounding grim, before you die and pass this money along to a beneficiary, the agency wants to make sure you fork over at least some of the taxes your IRA's been helping you postpone paying. Most people will make these withdrawals in cash, although you can also remove an equivalent dollar amount of stocks, funds, bonds, or any other securities you may be holding in the account. This choice won't change your total tax liability for the distribution.

But what's the minimum? It depends on your age. It gets bigger as you get older. Your very first RMD for the year you turn 73, for instance, is a little less than 3.8% of the retirement account's value as of the last business day of the previous year. When you're 80, the required distribution is just under 5% of the IRA's value at the end of last year. If you're 90, that year's required minimum distribution is almost 8.2% of the account's market value on the last day of the prior year. Although few people ever get close, the IRS' mathematical goal is to ensure your retirement account is emptied by the time you turn 120.

And don't worry -- your brokerage firm or IRA's custodian will supply you with the information needed to figure out your particular required distribution for any given year.

Image source: Getty Images.

You can also aggregate retirement accounts when calculating and taking your distribution, by the way. That is to say, if you happen to have multiple ordinary IRAs, you don't necessarily need to take an RMD from each one of them. You can choose to take your total RMD from only one of them -- the IRS only cares about the total amount of withdrawal that you make. Ditto for 403(b) accounts. Although you can't combine your 403(b) accounts with your ordinary/traditional IRA to calculate a combined RMD figure or take a single distribution from one such account, you can combine all of your 403(b) account amounts and take your total RMD from just one of them.

One noteworthy exception to this rule, though, is 401(k) accounts. If you happen to have more than one, you must determine and take an RMD separately for each one of these employer-sponsored plans. Also note that if you're still employed and actively contributing to a 401(k) plan, that particular account is exempt from RMDs. So are all Roth IRAs, for the record.

As for the timing, RMDs are expected to be completed by the end of the calendar/tax year. The one exception is your first one, for the year you turn 73. That one doesn't have to be done until April 1 of the following year. Just be careful waiting that long to make it happen. This will cause two taxable withdrawals to be completed in the same tax year, possibly increasing your sum-total tax liability by pushing you into a higher tax bracket.

The one case where it matters, it can really matter

But is July a smart month to take your RMD at any age? The answer is a solid "it depends."

For investors already sitting on enough cash to cover the IRA's minimum distribution that won't need this money anytime soon, it doesn't really matter when in the year you make the withdrawal.

If you'd like to leave as much value in the retirement account that you can by taking as little relative value out of any IRAs, however, recent marketwide bullishness means July's shaping up to be a great month to accommodate this plan.

Think about it. Regardless of how much your IRA's value fluctuates this year, the dollar amount of your 2025 RMD was etched in stone as of the end of 2024. It's not going to change. As such, by taking your required minimum distribution when the market is up and your retirement account's value is elevated, you're taking a relatively smaller chunk out of this account, leaving (again, relatively) more cash and assets inside this tax-sheltered vehicle. This tactic works just as well whether you're taking your RMD in the form of cash or taking the aforementioned "in-kind" distribution of assets.

But if you're going to be reinvesting your RMD money in something else, does this mean you'll also be buying an asset at an elevated price? That's certainly far from being the dream scenario. But it's also not the end of the world. Remember, you're still cashing in while prices are firm. On a net basis you'll be no worse off than you were before you sold something inside the IRA to come up with the cash in question that will be used to purchase something outside of your individual retirement account.

If this is something that's bugging you, though, there's nothing necessarily wrong with holding out for at least a little better price on whatever new investment you're looking to make with the cash you're about to free up.

Of course, things work the other way when the market is down, as it was in April. Selling stocks to free up cash for an RMD -- or even just transferring assets out of an IRA and into a brokerage account -- would have locked in a bit of unnecessary long-term damage to your retirement account's value due to short-lived volatility, by virtue of taking relatively more out of the account in question. Again, the amount of any RMD doesn't change once it's calculated.

You can hedge your timing-based risk too

Too much timing-minded strategizing for you to worry about? That's OK if you choose not to worry. Truth be told, when you take your required distribution during the year may not matter all that much in the end. Sometimes this effort pays off. Other times it doesn't. It's possible that the market could be much, much higher by the end of this year than it is now, for instance, making July a little less ideal to complete your RMD than it currently seems like it is.

If it's just not in your nature to at least not try to minimize the risk of ill-timed required minimum distributions, though, here's a suggestion: Take part of your calculated RMD for 2025 at different times in the year. There's no rule that says you have to complete it all on one shot. By staggering these withdrawals over the course of the year, you essentially hedge the risk that you're not doing it at the perfect time.

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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.