HomeBusinessHow do I handle RMDs if my stocks are in the red?

How do I handle RMDs if my stocks are in the red?

Ask an Advisor: How Do I Avoid Losses When Taking RMDs? I’ll be 72 years old soon and my stocks are ‘way down’ this year

I will be 73 in 2024. I have a traditional individual retirement account (IRA). Most of the money is tied up in stocks, and stocks have fallen sharply this year. If I sell to pay the required minimum distributions (RMDs), I will have to sell at a huge loss. How do I avoid that loss and pay for RMDs? Any strategies?

-Vinod

For some retirees, required minimum distributions are not relevant because the retirees must withdraw the money anyway to cover expenses. So the fact that they have to do this is pretty much undisputed.

For others, including you, RMDs can become a real sticking point. They limit your control over your benefit schedule, tax management, investment strategy and estate plan.

If you have questions specific to retirement withdrawal strategies, a financial advisor can help.

Bear markets and selling at a loss

Your specific problem is not difficult to understand. The specific stocks you own may have fallen.

One of the fundamental behavioral principles of successful long-term investing is to avoid panic selling in situations like these. If you do, you may miss out on potential future growth and simply compound your losses. Holding on for the long term is probably a better choice.

In your case, it sounds like you have that emotional response under control, but feel backed into a corner by your RMD.

Timing of your first required minimum distribution

As the name suggests, your RMD is required. You can’t just skip it. Otherwise, the IRS will fine you 50% of the amount you should have taken but didn’t. That’s steep, so let’s definitely avoid that.

However, since this will be your first required minimum distribution, you have a little leeway when it comes to when you take it.

As things stand now, you’re responsible for an RMD since you’re 73 or older, thanks to the Setting Every Community Up for Retirement Enhancement (SECURE) Act. But you have until April 1 of the year following the year of your first required minimum distribution to physically withdraw the money from your account. For you, this means that you can postpone the payment until April 1, 2025.

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Waiting until then to complete your first withdrawal may give you plenty of time to recoup your losses. But there is no guarantee. Your stocks may recover during that time, or they may fall even further, making your problem worse. It is an option you have after all. Consider speaking to a financial advisor who can offer you more specific insights based on your circumstances and goals.

Benefits and their tax consequences

Also remember that delaying your first RMD until April 1 of the following year does not alleviate the requirement to take an RMD for that year as well. You must take each subsequent RMD after your first by December 31 of the applicable year, so you will need to take two RMDs that year if you decide to defer. In other words, if you withdraw your 2024 RMD on April 1, 2025, you must still withdraw the 2025 RMD by December 31, 2025.

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