Timing Your RMD Withdrawal: Why January Might Be the Right Smart Move

Understanding Required Minimum Distributions

Once you reach age 73, the IRS requires you to withdraw a minimum amount from your traditional retirement accounts each year. This annual withdrawal—known as a required minimum distribution—is treated as taxable income. The Roth IRA remains an exception, as these withdrawals carry no tax liability.

The withdrawal percentage varies based on your age and account balance from the prior year-end. At 73, you’ll withdraw approximately 3.8% of your retirement assets. By age 85, this increases to 6.25%. Reach 100, and the figure climbs to just over 15.6%. Your IRA custodian or brokerage firm can provide year-end account values, but you’ll need to calculate your specific RMD using IRS worksheets.

The Exception and the Flexibility

Your first RMD has extended flexibility—you can wait until April 1 of the year following your 73rd birthday. However, this creates a tax complication: you’d owe distributions for two consecutive tax years, which likely increases your overall tax burden. It’s usually better to take that first RMD before year-end.

If you own multiple traditional IRAs or 403(b) accounts, you can combine their balances and withdraw your entire RMD from a single account. This option doesn’t apply to 401(k) plans—each requires a separate calculation. One notable exception: if you’re still working and contributing to your current employer’s 401(k), you can defer distributions from that specific account while taking them from previous employers’ plans.

The Market Timing Question

Should you take your RMD now? Consider where equity markets currently stand. The S&P 500 has climbed 40% since April and now trades at record levels. Historically, markets have been due for a pullback, making early January a potentially advantageous exit point.

This isn’t traditional market timing, which research shows rarely succeeds. Rather, it’s a risk-management approach. Since an RMD is a fixed dollar amount—not a number of shares—you want to liquidate positions when valuations appear stretched rather than after a significant downturn.

Strategic Alternatives

If you don’t immediately need the cash, an in-kind transfer moves securities directly into a taxable brokerage account while satisfying your RMD tax requirement. Your custodian determines the taxable amount on transfer date.

Another approach: stagger distributions throughout the year. Taking quarterly or monthly withdrawals averages your exit price closer to the S&P 500’s annual midpoint. This approach eliminates the pressure to time the perfect exit and removes the risk of procrastinating until year-end only to find markets have already fallen.

The real danger? Waiting too long hoping to sell at absolute peak prices. Each passing day narrows that window. You have over 350 days remaining, but missing your December 31 deadline triggers a 25% penalty on the shortfall.

The Smart Move Forward

Current market conditions—elevated valuations following a significant rally—suggest January represents a reasonable time to execute your distribution. It balances the psychological comfort of acting decisively with the mathematical reality of selling into strength rather than weakness. Just ensure your decision aligns with your broader retirement income needs and tax situation.