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I have grave concerns about the title of this blog. Is it proper to include the word simple with the words Required Minimum Distribution (RMD.)
Using simplified and required minimum distributions together may be an oxymoron. The statement “Simplified RMDs” would be on par with using the terms guaranteed safe investment or easy to assemble. Since taxpayers with a qualified retirement plan normally take RMD‘s, there are questions concerning timing and best strategies once RMDs are required.
I started taking RMD‘s two years ago. RMDs may be straightforward, but the decision is not!
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What are RMDs?
RMDs (Required Minimum Distributions) are the minimum amounts you must withdraw each year from certain retirement accounts once you reach a specified age. They are mandated by the Internal Revenue Service to ensure retirement funds are eventually taxed.
1) What Accounts Have RMDs
RMDs generally apply to:
- Traditional IRAs
- SEP and SIMPLE IRAs
- 401(k), 403(b), and other employer plans
- Inherited retirement accounts
Roth IRAs do not have RMDs during the original owner’s lifetime.
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2) When RMDs Start
As of current law (after the SECURE 2.0 changes):
- If you were born 1951–1959 → RMDs start at age 73
- If born 1960 or later → RMDs start at age 75
Your first RMD is due by:
- April 1 of the year after you reach the required age
- After that, RMDs are due December 31 each year
(Many retirees choose to take the first one in the same year they turn the required age to avoid two taxable distributions in one year.)
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3) How RMDs Are Determined (The Core Formula)
RMDs are calculated using a simple division:
Step-by-step
- Find your account balance on December 31st of last year
- Look up your life expectancy factor from the IRS table (usually the Uniform Lifetime Table)
- Divide the balance by that factor
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4) Example Calculation
Suppose:
- IRA balance on Dec 31: $500,000
- Age: 73
- IRS life expectancy factor: 26.5
Result: $500,000 ÷ 26.5 = $18,868
That would be your minimum withdrawal for the year.
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5) Important Details That Often Matter in Planning
You must take the full amount. Taking less than the full amount triggers a penalty (currently 25%, potentially reduced to 10% if corrected promptly)
- Multiple IRAs → can combine and take from one IRA
- Multiple 401(k)s → must take separately from each
Still working exception: If you’re still working and don’t own >5% of the company, you may delay RMDs from that employer’s plan.
Taxes RMDs are taxed as ordinary income. They can affect: Medicare premiums (IRMAA) Social Security taxation Tax brackets
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6) The Three Numbers That Drive Your RMD Each Year
- Your age
- Your account balance on Dec 31 of the prior year
- The IRS life expectancy factor
That’s it—the calculation itself is mechanical.
So, that’s the RMD. It must be taken annually, but can be done any time during the year. This is true, except for the first RMD, which can be delayed until April 1 of the year following the first year of RMD‘s.
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What is the best time during the year to take RMD‘s, and what are the pros and cons of each different time period?
The Three Most Common Timing Strategies
1) Late in the Year (November–December) — Most common default
Best if: You want to keep money invested as long as possible.
Why: Your funds continue growing tax-deferred for most of the year.
Pros Maximizes tax-deferred growth Simple—one withdrawal per year Works well if markets are stable or rising
Cons If markets drop late in the year, you may be forced to sell at lower prices Less flexibility for tax planning
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2) Early in the Year (January–March) — Risk-management approach
Best if: You’re concerned about market declines or want certainty.
Pros Removes market risk for that year’s RMD Gives full-year clarity on taxes Useful if you rely on the RMD for spending
Cons Less time invested Slightly reduces potential growth
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3) Monthly or Quarterly Withdrawals — Tax and cash-flow smoothing
Best if: You use the RMD as regular income You want to reduce timing risk (market volatility)
Pros Dollar-cost averaging effect Smoother cash flow Reduces the risk of withdrawing at a market low
Cons Slightly more administrative complexity
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A Practical Rule of Thumb If you don’t need the money: Take the RMD late in the year If you live on the money: Take it monthly or quarterly If markets feel risky or volatile: Take it earlier in the year
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One Important Exception (First RMD Year)
If this is your first RMD, you can delay it until April 1 of the following year—but that creates two taxable RMDs in one year, which can push you into a higher tax bracket ⚠️ This is a common planning mistake.
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Many investors in a traditional 60/40 portfolio often use one of these two optimized approaches: December withdrawal if they are reinvesting or don’t need cash. Quarterly withdrawals if they are drawing income.
Both are financially sound. The difference is mostly about risk tolerance and cash-flow needs. RMD’s are based on portfolio values on December 31st of the prior year.
I find it most helpful and easiest to do my RMD early in the year.
The RMD for each year is based on the portfolio value at the end of the previous year. This means that if you wait until the end of the year, you may be forced to sell assets that have decreased in value to satisfy the RMD requirements. It doesn’t matter whether the market is up or down, the amount distributed is still based on the value of your portfolio on December 31 of the previous year. (It is not based on the current value being divided by the RMD divider.)
Taking RMDs early in the year also allows me to tactically sell assets that I will need for the following year’s RMD.
I’ve been questioned over the last few years about late-year RMDs, and tax optimization.
The problem that most taxpayers face concerns IRMAA. IRMAA (Income-Related Monthly Adjustment Amount) is a Medicare surcharge added to the base Medicare premium when income rises above a certain point.
Once taxpayers qualify for Medicare, their income is evaluated annually. IRMAA surcharges are based on the taxpayer’s return from two years ago (2026 IRMAA surcharges are based on a taxpayer’s 2024 tax return.) IRMAA surcharges occur when taxpayers hit certain cliffs. They are called cliffs because if income exceeds these cliffs by one dollar, surcharges increase. A taxpayer who is trying to optimize taxes may receive unexpected income at the end of the year. If they exceed one of these cliffs by one dollar, their total tax bill (including Medicare, and IRMAA surcharges) may actually increase. IRMAA surcharges are evaluated and readjusted annually.
My tax situation always seems too uncertain at year-end for me to attempt to optimize taxes.
I have found it easier and less stressful to take RMDs near the beginning of the year.
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Final Thoughts
My accountant says that paying taxes means you have income, and that is a good thing.
I always felt that statement was a left-handed compliment. In my mind, paying taxes is never a good thing!
This blog was based on questions about tax optimization, and year-end RMDs.
As related above, I am not a big fan of year-end RMDs for the reasons outlined above.
Since RMDs are taxed as ordinary income, larger RMDs will have a greater impact on taxes.
This could also mean thousands of extra dollars in IRMAA surcharges if taxpayers are not extremely careful, or are unlucky.
In some cases, year-end RMDs complicate an already complicated situation.
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