Using retirement accounts is one of the best ways to save for your retirement. Not only are you proactively saving for retirement, but you're also getting a tax break for doing it.
Accounts like 401(k)s and traditional IRAs have upfront tax breaks by allowing you to lower your taxable income the year you make contributions. Unfortunately, skipping out on taxes on the front end means you're responsible for paying taxes on withdrawals from these accounts in retirement.
To avoid a situation in which someone doesn't make withdrawals to avoid paying taxes, the IRS puts in place required minimum distributions (RMDs). If you're currently required to take RMDs or will be soon, and wondering if taking your RMD in May is a good idea, the short answer is that it depends.
Let's examine why.
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How to calculate your required minimum distribution
Your RMD is a set amount you're required to withdraw from tax-deferred retirement accounts by Dec. 31, starting the year you turn 73. The only exception is the first year, when you have until April 1 of the following year. Calculating your RMD for the year can be done in three easy steps:
- Find out your account balance at the end of the previous year.
- Look for the life expectancy factor (LEF) corresponding to your age and marital status (the IRS provides these numbers).
- Divide your account value by your LEF.
As an example, check out the table for someone single with $500,000 in their retirement account as of the end of 2024:
| Age | Life Expectancy Factor | Required Minimum Distribution |
|---|---|---|
| 73 | 26.5 | $18,868 |
| 74 | 25.5 | $19,608 |
| 75 | 24.6 | $20,325 |
| 76 | 23.7 | $21,097 |
| 77 | 22.9 | $21,834 |
| 78 | 22.0 | $22,727 |
| 79 | 21.1 | $23,697 |
| 80 | 20.2 | $24,752 |
Data source: IRS. RMDs rounded to the nearest dollar.
What happens if you don't take your RMD?
Failing to take your RMD will result in a penalty of 25% of the amount you failed to withdraw. For example, if a 75-year-old only withdrew $15,325 instead of $20,325, they would be penalized $1,250 (25% of the remaining $5,000).
Luckily, correcting your mistake and taking your RMD within two years of the missed deadline could reduce the penalty to 10%. Continuing our example, if the 75-year-old corrected their mistake within two years, the penalty could be reduced to $500 (10% of the remaining $5,000). Whatever the case, it's best to stay up to date on your RMD obligations to avoid penalties.
So, should you take your RMD in May?
The good thing about RMDs is that there's no timeline for when you need to make the withdrawals, as long as it happens before the end of the year. Some people may take them to start the year, some may take them at the end of the year, and others may make incremental withdrawals throughout the year.
There's no right or wrong time to take your RMD; only the time that works best for your personal situation. If you need the extra cash or prefer to avoid an end-of-the-year rush, then taking your RMDs in May could make sense. However, if you're worried about the extra volatile market right now, May might not be the best month to make a large withdrawal.
Of course, there's no way to predict how the market will perform in the short term. We've seen plunges, historical one-day gains, and seemingly everything in between, all just this year. That's why I'd recommend spreading your RMDs out relatively evenly this year.
By spreading out your RMDs, you reduce the risk of selling assets at a loss or for noticeably less value during market downturns and offset some of the negative effects of volatility. Given the current uncertainty, that seems like a smart move for retirees.
