There are pros and cons to withdrawing at the beginning of the year.
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If you’re saving for retirement in a traditional IRA or 401(k), you may know that you can’t keep that money forever. Once you reach age 73 (or later, depending on your year of birth), you must begin taking required minimum distributions (RMDs).
You can defer your first RMD until April 1 of the year after you turn 73. All subsequent RMDs are due by December 31 of each year. But beyond that, there are no rules governing when you must take RMDs during the year.
These distributions can be taken monthly, quarterly, or in a lump sum. You can receive it on January 2nd, February 23rd, or June 26th and it doesn’t matter to the IRS. As long as you make your withdrawals by the appropriate deadline each year, you won’t be hit with the 25% penalty that can occur if you miss your RMD.
You may be wondering whether you should take a 2026 RMD in February. Here’s why it’s a good idea and why you might want to wait.
Why it pays to act now
One of the benefits of taking an RMD at the beginning of the year is that you can cross important tasks off your list. By taking an RMD in February, you eliminate the risk of forgetting and being penalized later.
You can also base your decision on your portfolio’s performance. If it is rising, it may be a good time to accept RMDs rather than risking the volatility that could occur later this year.
And if you delayed taking your first RMD last year, you only have about a month left to take that withdrawal. And, as you all know, we’re going to have to deal with a little tax issue in the coming weeks. By taking an RMD now, you can focus on filing your tax return without risking missing the April 1st deadline.
Why waiting is beneficial
While it may be good to complete an RMD, remember that the longer you leave your funds in your IRA or 401(k), the more tax-advantaged growth you may enjoy. Plus, waiting gives you more flexibility.
It may be difficult to figure out your annual income in February. When the end of the year comes and you may find yourself in a higher tax bracket, you can strategically make qualified charitable contributions to avoid paying taxes on RMDs.
There is no right or wrong time of year to take RMDs. So if it’s on your radar in February and you decide to move forward and back out, that’s a perfectly reasonable move. It’s okay to wait, but be sure to set a calendar reminder to take your RMD before the end of the year so you don’t forget about it.
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