29 Jan Should I take my retirement distribution now or wait?

Q. I typically take my Required Minimum Distribution (RMD) from my IRA in December to give it more time for the money to grow. We just saw new highs for the stock market and I wonder with the election and recent stock market gains if it would make more sense to take my 2024 RMD soon instead of risking the market going too crazy close to the end of 2024. What do you think?
— Investor

A. We’re hearing some hints of market timing here.

You do have some choices in when you take the distributions.

Let’s go over the rules first.

Retirement account owners are required to take their RMD every year after reaching age 73, said Deva Panambur, a fee-only planner with Sarsi, LLC in West New York.

The age was lower in previous years.

“Annual distributions are calculated based on the previous year-end account value and are included in your taxable income for the year,” he said. “Keep in mind that while you are required to withdraw the amount from your retirement account, you don’t necessarily have to spend it.”

You will need to plan your cash flows and you could reinvest the distributions in another account, he said.

You can take these distributions in one lump sum or break it down into several distributions in the year, Panambur said, and there are pros and cons to both.

“Taking distributions at the end of the year keeps you invested for longer and can be beneficial if you do it consistently over time,” he said. “But you cannot be sure of it in any given year as markets can fall any time. There is no historical evidence showing that stock markets fall every time a new high is reached and acting on such forecasts is not a reliable strategy.”

Taking distributions periodically through the year could be helpful to manage portfolio volatility and your cash flows, he said. You could use a combination of portfolio income and asset sales to meet your income requirements.

There are a few other planning opportunities to consider.

For example, if you plan to donate to charity using a Qualified Charitable Distribution (QCD) from your IRA, then you will want to do it first and then calculate any remaining RMD because QCDs satisfy your RMDs, but the first dollars withdrawn from your IRA are deemed to satisfy the RMD, he said.

Another example is that tax withholding from retirement account distributions is considered as paid throughout the year, Panambur said.

“If you have taxes due or pay estimated taxes, you can use the tax withholding to avoid or reduce any potential tax underpayment penalties,” he said.

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This story was originally published in January 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.