Why Taking Your RMDs While the Market Is High Can Be a Smart Move
If you’re retired and over 73, you likely know about required minimum distributions (RMDs). These are the withdrawals the IRS mandates you take from certain retirement accounts like traditional IRAs and 401(k)s. But what you may not know is that when you take your RMDs can make a difference in your financial picture—especially if you’re planning to take cash and the market is high.
Here’s a breakdown of why thoughtful planning can make your RMDs work better for you.
What Are RMDs, and Why Do They Matter?
RMDs are the government’s way of ensuring that tax-deferred retirement funds eventually get taxed. Once you reach RMD age, you’re required to withdraw a minimum amount each year. The penalty for skipping or under-withdrawing can be steep, so it’s critical to stay on top of this requirement.
The amount of your RMD depends on your account balance as of December 31 of the previous year and your age. These withdrawals are taxed as ordinary income, so managing how and when you take them can help you avoid an unnecessarily large tax bill.
The Market Connection: Why “High” Matters
When the stock market is performing well, the value of your retirement accounts typically increases. This means your RMD for the year could be larger than in years when the market has been down. While an "up" market is generally positive for your investments, it also requires you to withdraw (and pay taxes on) more money (a good problem to have).
If the market is high at the moment and for whatever reason we may be expecting it to decline going forward, taking your RMD early in the year could be advantageous, especially if your goal is to take cash.
Since your RMD amount is based on the prior year’s balance as of December 31, withdrawing early locks in gains while values are elevated. This means you’ll need to sell fewer shares to meet your RMD requirement, leaving more of your portfolio intact for potential future growth.
Of course, this is assuming a bit of crystal ball gazing, which isn’t a good idea—but the theory is that if you need to take the RMD as cash, do it when the market is high. That way, you have to sell fewer shares for a given number of dollars.
By reducing the number of shares sold, you preserve more of your investments’ long-term potential while maximizing the value of your cash withdrawal.
What If You Don’t Need the Cash?
If you don’t need the money from your RMD to cover living expenses, you have options. You can reinvest the funds in a taxable brokerage account, where they can continue to grow. While you’ll still owe taxes on the RMD, reinvesting allows your money to remain working for you.
Another strategy is to use your RMD to make a qualified charitable distribution (QCD). If you’re charitably inclined, a QCD allows you to donate up to $100,000 directly to a qualified charity, which can count toward your RMD and reduce your taxable income.
A Word on Working with a Financial Advisor
Navigating RMDs, market trends, and tax implications can feel overwhelming, but you don’t have to do it alone. A financial advisor, particularly a fee-only, fiduciary advisor, can help you create a strategy that aligns with your goals and minimizes unnecessary costs. Fiduciary advisors are legally required to act in your best interest, giving you peace of mind that their advice is tailored to your needs. Fee-only advisors don’t take commissions, which can boost your confidence that their advice is objective.
By working with a professional, you can:
Develop a plan for timing your RMDs.
Explore tax-efficient strategies to manage withdrawals.
Identify opportunities to reinvest or donate your RMDs.
Final Thoughts
Taking your RMDs while the market is high is a thoughtful strategy that could help you maximize your retirement savings. If you’re unsure where to start, consider reaching out to a trusted financial advisor who can guide you through these decisions. With the right planning, you can make your RMDs work for you—not just for today, but for the future you’re building.
Schedule a complimentary, 15-minute chat with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was written in collaboration with artificial intelligence (ChatGPT) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor with offices in Granite Bay and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.