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COVID-19: Should You Take Your Required Minimum Distribution Now?

March 24, 2020

Bernie Kent



While we have no control over markets, we do have some control over taxes on investments. With markets in turmoil, it is a good time to consider whether you are potentially better off taking your Required Minimum Distribution (RMD) now, rather than waiting until the end of the year. If your Individual Retirement Account (IRA) is in fixed income securities or you use your RMD for current spending, you can skip this article. If not, read on.

RMDs apply to IRAs of any IRA owner who was 70 1/2 or older before January 1, 2020. RMDs are required for non-spousal beneficiaries of deceased IRA owners. RMDs are also required of retirees over age 70 1/2 in qualified retirement plans such as 401(k) plans. Since the same RMD rules generally apply to both IRAs and qualified plans, those terms are used interchangeably in this article.

If you are using your RMD for current spending, then the timing of the distribution would not matter for tax purposes. As a general matter, you should leave the funds in the plan as long as possible to maximize your tax-deferred earnings. However, if you are not going to spend the RMD and you plan to continue to invest the funds, you may want to consider taking your RMD now rather than waiting until the end of the year to the extent you are taking the distribution from volatile assets such as stocks or equity mutual funds.

Why should I consider taking my RMD now if I plan to invest in the distribution?

If you sell volatile assets such as stock inside your IRA and use the distributed cash to buy back these assets, you will more likely have a better tax result than if you wait until year-end to take your RMD. Let’s assume that the investment of the RMD is the same equity investment held in the IRA. One of two things will likely happen between now and year-end: the equities will go up or they will go down.

Stocks go up

If the stocks go up, you can wait until they become long-term holdings next year before selling and you will receive the lower tax rate on long-term capital gains. You may be able to sell this year without the current tax impact if you have unused capital losses. You may even hold the stocks until death when you will get a step up in tax basis to the fair market value at the date of death or make charitable contributions and avoid the capital gain that way. Compare that to what happens if you wait until year-end to take your RMD. All of the gains on the stocks is inside your IRA. Your RMD will be the same as it would have been in March since the RMD was determined based on the 12/31/19 account value. The gain on the stocks that you didn’t sell to make the RMD is still inside the account and will be distributed gradually over your lifetime as ordinary income (or after your death as ordinary income). It is unclear if this tax deferral will be more valuable than the benefit of receiving the lower tax rate on capital gains. The key determinant would be how long you hold the stock acquired from the RMD. The longer the holding period, the more likely that you will be better off with the current distribution of your RMD. The SECURE Act that became law in 2020 generally requires distributions of retirement accounts within ten years of the death of the account holder and spouse.

Stocks go down

If the stocks go down, you can sell before year-end and recognize a capital loss (see my article entitled “Should you take your capital losses now?”). To the extent that the capital loss provides a tax benefit, you may be better off than you would have been by keeping the stocks in your IRA, where the loss merely reduces future RMDs over your lifetime (and after death).


The impact of future dividends on the calculation should be a minor consideration since they are generally a small part of the total return. The dividends outside the IRA will be taxed currently (usually at the lower rate applicable to long-term capital gains). The dividends inside the IRA will be taxed as ordinary income when paid out by increased RMDs over your lifetime (and after death). There is an advantage to receiving tax deferral on the dividends (by waiting) rather than the favorable tax rate on the dividends distributed, but often it will not be significant enough to tip the balance in favor of later distributions.

In-kind distributions

IRAs and qualified plans are permitted to make distributions “in-kind” by distributing stocks, mutual funds, or other assets. Not all plans allow in-kind distributions. You would need to check with your plan administrator or custodian to see if this is possible. In-kind distributions avoid the situation of being out of the stocks during the time that the plan sells the stocks, then distributes the cash to you personally and you repurchase the stocks.


If you have income tax withholding from your IRA, it is generally best to have that withholding at the end of the year so that you receive the earnings on the amount that is being withheld for the entire year. Those extra earnings will be paid out over your lifetime. The other advantage of having the withholding at the end of the year is that you can fine-tune your withholding to match your expected tax liability. Income tax withholding is treated as paid ratably throughout the year, even if it is paid in late December. This allows you to reduce your estimated tax paid in April, June, and September.

Clearest case scenario for taking RMD now

In many situations, it is not clear whether you will benefit from taking your RMD early in the year. Here are the factors that would mitigate in favor of early in the year distribution of RMDs (roughly in order of importance):

  1. You plan on holding the equities until death.
  2. Interest rates remain low.
  3. You don’t use much of your RMD for income tax withholding.
  4. Your tax rate will be higher in the future.
  5. You have no spouse.
  6. You are much older than 70 1/2.
  7. The equities distributed or purchased have low dividends.
  8. Your IRA custodian or plan administrator allows distributions in-kind.

I want to thank my colleague, Jordan Smith, who suggested exploring this topic.