Six Reasons to Take Your RMD in January

Six Reasons to Take Your RMD in January

If you are 73 years old or older and have a pre-tax retirement account, you are likely required to take Required Minimum Distributions (RMDs). But when is the best time to take these distributions? Many retirees choose to take monthly distributions, while others prefer to wait until the end of the year. However, taking RMDs in January may be the most strategic approach to maximize opportunities for your retirement account. Below, we'll explore six benefits you might consider as you plan your distribution strategy this year. 

RMD Scenario
Let's say you were born on January 1, 1953, so you just turned 73 this month. The IRS wishes you a happy birthday and puts out its figurative hand in anticipation of a significant contribution to its coffers. It expects (and counts on) taxes paid on your retirement account distribution. If the balance in your Traditional IRA was $1,325,00 on December 31, 2025, your RMD for 2026 is $50,000. ($1,325,000 divided by 26.5 from the Uniform Lifetime IRS factor table for IRA owners who are either unmarried or married to someone who is not more than 10 years younger than them, or whose spouses are not the sole beneficiaries of their IRAs). If you withhold 22% for taxes, your net distribution would be $39,000. As a monthly distribution, that would be $3,250. So, why is it better to take that amount all in January?

1. Beneficiary Protection: If you were to pass away during the calendar year without having taken your full RMD, that obligation transfers to your beneficiaries. The additional administrative and financial burden during an already difficult time can create undue stress, especially if there are multiple beneficiaries or your spouse is not working with a financial advisor. By completing your RMD in January, you effectively eliminate this potential complication for your loved ones.
2. Avoid Procedural Pitfalls: If you set up systematic monthly distributions, those connections can occasionally experience technical disruptions. When these distributions come from retirement accounts intended to satisfy RMD requirements, any processing delays or failures could result in missed deadlines and substantial penalties. Taking your entire RMD in January removes this risk entirely. Remember, the consequence of missing the RMD deadline is a hefty 25% penalty on the amount, for example $12,500 on a $50,000 RMD.
3. Tax Strategy Optimization: The early-year RMD approach offers several tax management advantages: 
   1. Clearer Tax Visibility: By taking your RMD in January, you establish certainty around this portion of your taxable income early in the year, enabling more precise tax planning for the months ahead.
   2. Roth Conversion Flexibility: RMDs must be satisfied before executing any Roth conversions. By completing your RMD requirements in January, you open the door for potential Roth conversion strategies throughout the remainder of the year, should market conditions or tax situations make such moves advantageous.
4. Market Timing Considerations: No one knows what is going to happen in the stock market. If your IRA is invested in stocks, and you do not have a portion carved out in bonds to take distributions, you are in a very precarious position. If you wait until later in the year and the stock market is down, you still have to take out your RMD and liquidate more shares to meet the same dollar amount requirement. As of this writing in January 2026, stock and bond markets are up from this point last year, so taking distributions early avoids the risk of a potential market downturn later in the year. 
5. Rebalancing Opportunities: While distributing from your IRA does mean those funds won't benefit from continued tax-deferred growth, transferring your RMD to a joint investment account creates an opportunity to rebalance your portfolio with a larger sum. This can be particularly valuable for adjusting positions that have drifted from your target allocations.
6. QCD Strategy Implementation: If charitable giving through Qualified Charitable Distributions (QCDs) is part of your financial plan, having already satisfied most of your RMD requirement allows for more precise tracking and implementation of your giving strategy throughout the year.

Final Thoughts
While conventional wisdom often suggests deferring taxable events as long as possible, the current market environment, combined with practical considerations, may make January RMDs the optimal strategy for 2026.

Consider discussing this approach with your financial advisor to determine if this timing aligns with your comprehensive retirement income plan and overall financial objectives. If you don't have a financial advisor, contact the Hurlow Wealth Management Group at 812-333-4726 or click here to schedule a free consultation today. For over two decades, our fiduciary financial advisors have helped Midwest Millionaires find clarity, make decisions with confidence, and achieve comfort in retirement. 

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