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I asked about the timing of MRDs from IRAs etc on another board (Mechanical Investing). One response I got was to take out the money in October, when the market is (statistically) high and so the withdrawal is a smaller fraction of the value of the account.

Required Minimum Distributions apply to qualified plans, IRAs, SEPs, SIMPLE IRAs, and Section 457 plans. To determine the amount of distributions, use the balance as of December 31 of the year prior to the distributions as the calculation base.

If you believe the value of your account will increase between December 31 and the date you take your distributions, then you would want to wait to take them. However, if you feel your account will decrease, you would want to take your distribution as soon as possible. This is essentially "market timing," as you are trying to predict where the market will be so you can optimize your withdrawals.

You may also set up a systematic distribution from your qualified account, essentially dollar-cost-averaging out of your investments, a compromise over the previous timing decisions. Systematic distributions mean less shares of your holdings will be sold when the markets are at a high during the year, and more of your holdings will be sold when the markets are at a low.

One last comment: typically, individuals at the RMD stage of their lifetime are invested in a majoirty of fixed income investments with interest and dividends reinvested. In this case, it would be prudent to leave as high of a balance as possible in the account to benefit from dividend and interest compounding throughout the year. Pulling out your RMD in the beginning of the year will eliminate the opportunity of compounding additional interest during the year.

On reflection, however, doesn't it depend on whether one needs the money to live on or to invest in a taxable account?

Based on needs analysis, it may be necessary to make the RMD in the beginning of the year to fund cash flow needs. This need is paramount to the market timing strategy, because bills may not get paid if the RMD is not taken to fund necessary expenses, and this quickly leads to a bad situation.

Again, don't let the tax tail wag the dog. Run a needs analysis and determine cash flow for the year. If there is an unmet need, then RMDs can be used to satisfy the need. If the amount needed does not exceed the RMD amount, you may leave that portion of the RMD in the account until you decide when you want to make the withdrawal (provided you do it before the end of the year). You can use your best judgement using some or all of the strategies described above.

Bill
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