RMD Timing: The First Dollars Out Are RMDs, and Other Considerations

Some of the most common questions I receive relate to the timing of RMDs. They’re each small enough topics that they don’t merit articles individually, so here they are as a brief collection instead.

RMD Starting Age

Due to legislation over the last several years, the starting age for RMDs based on year of birth is now as follows:

• 1950 or earlier: 72 (or 70.5 for anybody who turned 70.5 prior to 2020)
• 1951-1959: 73
• 1960 or later: 75

RMDs Work on a Calendar Year Basis (For the Most Part)

As with distributions from retirement accounts in general, RMDs work on calendar year basis. That is, unlike with contributions, you don’t have the option to wait until some time in the following year to take your RMD.

There is one exception to the above rule though. Specifically, for the first year for which you’re required to take an RMD, you can wait until April 1 of the following year. But in most cases, taking advantage of this exception is not advantageous, because it means you’d be taking two RMDs that year, which can result in a higher tax rate on those distributions. For example, if you turn 73 in 2025, you’d have until April 1, 2026 to take your first RMD. But then you’d have to take that RMD (i.e., the RMD for 2025) and the RMD for 2026, in 2026.

When Is the Best Time to Take an RMD?

Another common question is, within a given year, when is the best time to take an RMD (i.e., earlier or later in the year).

If the money for the RMD is needed for spending, then just take the money out of the IRA as you need it.

If the money isn’t going to be needed for spending (i.e., after being distributed from the IRA, it would just be reinvested in a taxable brokerage account), then we generally want to leave it in the IRA for most of the year. That is, we want to put off the “tax drag” (i.e., the tax on interest/dividends/capital gains, that occurs in a taxable account) for as long as is practical. Don’t wait until December 31st though, because we don’t want any administrative issues to cause a late RMD. October-November is usually what I’m aiming for.

And really, this preference for waiting until later in the year is a minor one. We’re talking about the tax, on a few months of interest, from a small percentage of an account, which is itself probably only a portion of your portfolio. If there’s ever any other reason that points in favor of taking the RMD earlier in the year, just take it earlier in the year.

The First Dollars Out Are the RMD

Another important rule is that, in any given year, the first dollars out of the IRA are considered to be part of the RMD, until the RMD is satisfied. This has two primary takeaways:

1. Because RMDs cannot be converted to Roth, if you’re intending to do a Roth conversion in a year in which you have to take an RMD (not super common, but it does happen), you have to take the RMD first. The RMD must be satisfied before the conversion, otherwise you converted your RMD, which you aren’t allowed to do.
2. If you want to use a qualified charitable distribution (QCD) to satisfy part or all of your RMD, don’t fully satisfy the RMD before taking the QCD. (If you take a QCD after taking the RMD, the QCD will still be nontaxable. But if you want to use the QCD to satisfy the RMD — so that you don’t have a taxable distribution for the year — don’t take any distributions other than the QCD.)

Among people who read personal finance books, many save a high percentage of their income through most of their careers. One thing that eventually happens for some such people is that they reach a point at which they realize they have not only saved "enough," they have saved "more than enough." Their desired standard of living in retirement is well secured, and it’s likely that a major part of the portfolio is eventually going to be left to loved ones and/or charity. And that realization raises a whole list of new questions and concerns.

This book’s goal is to help you answer those questions.