Can I Take My RMDs When My Portfolio Is Down to Make Them Smaller?

Unfortunately, you can’t time the market on required minimum distributions (RMDs).

RMDs are calculated based on two factors: the value of your portfolio and your age, both as measured at the end of the previous year. So, for example, your required minimum distribution in 2025 is based on the value of your portfolio and your age as of end of day December 31, 2024.

This means that you can manage your RMDs inter-year. By taking extra withdrawals in one year, you can reduce the portfolio’s value and (consequently) your required minimum withdrawals the following year.

It also means that you cannot manage your RMDs intra-year. You cannot change your required minimum withdrawals by taking withdrawals during the year. Your minimum distribution is already defined once the year begins.

For example, say that it’s June and your portfolio has taken a dive. If you calculate your RMDs as of now, they’d be much lower. But remember, that’s not how it works.

Here’s why you can’t just pull the money out and call it a day.

If you’re looking to come up with a strategy for managing your RMDs, consider working with a financial advisor.

What Are Required Minimum Distributions?

RMDs are a tax law that applies to all pre-tax retirement accounts. This means they apply to portfolios such as 401(k) and traditional IRA accounts. The minimum distribution rule does not apply to post-tax Roth IRA and Roth 401(k) portfolios, nor does it apply to standard investment accounts with no special tax status.

The RMD rule, as its name suggests, is a minimum amount of money that you must withdraw from a tax-advantaged retirement account each year. You can take this withdrawal at any time, and those withdrawals may be in any amount, over the course of the year so long as you withdraw the minimum amount by the end of the year.

Households that leave withdrawals until the last minute should make sure to pay attention to transaction times, otherwise you might get caught by the gap between when you enter the order and when it goes through. A financial advisor can help you create a plan that takes this into account.

An RMD applies independently to each applicable retirement account you own. For example, say that you have a 401(k) and a traditional IRA. Each would have a separate minimum withdrawal. (That is, you could not withdraw extra from the 401(k) and apply it toward your IRA.) The only exception to this is if you hold multiple IRAs. You can calculate your IRA required minimum distributions collectively, across all accounts, and take the full distribution from one IRA portfolio.

Your Distribution Age

You must begin taking required minimum distributions at what is called your “distribution age.” Currently, that age is 73 years old. By 2033, the distribution age will increase to 75 years old, meaning that in 2033 you will not have to take RMDs until you are 75 years old. On the year in which you reach your distribution age (currently, the year in which you turn 73), you must take a partial RMD. Once you begin taking minimum withdrawals you must continue doing so until the account is empty. Required minimum distributions do not expire.

Required minimum distributions also apply to inherited retirement accounts. In most cases, a beneficiary must withdraw the full value of an inherited retirement account within 10 years of receiving it.

Retirees should make sure to review these rules regularly in case of future updates.

How RMDs Are Calculated

Required minimum distributions are calculated based on two values: your age and your portfolio’s value, both as of the end of the previous year. So, for example, to calculate your RMD in 2025, you would use the portfolio’s value and your age at end of day on December 31, 2024.

Based on your age, you look up a value called your life expectancy factor. This number is published each year in the IRS’ Uniform Life Table. You then divide your portfolio’s value as of December 31 by your life expectancy factor. The resulting number is your required minimum distribution for the coming year.

For example, say that on December 31 your 401(k) had $1 million in it and you were 75 years old. Your life expectancy factor would be 24.6. So your required minimum distribution would be: $1 million / 24.6 = $40,650.

How RMDs Are Enforced

The IRS enforces RMDs with significant tax penalties. If you do not take your full required minimum distribution, you’ll have to pay a tax penalty worth 25% of the amount not taken.

For example, say that your required minimum distribution in 2025 is $10,000. If you take out $6,000, you would have a $4,000 under-withdrawal. And the IRS would fine you $1,000 (0.25 * $4,000).

You can reduce this fine to 10% of the under-withdrawn amount if you correct the situation quickly. Withdraw the required amount from your portfolio, then file Form 5329 to alert the IRS to your error and correction.

If you take this action within two years of missing your RMD, the IRS will typically adjust your penalty to 10%.

You can also potentially appeal to the IRS to waive penalties altogether. Again, you still must correct the error and withdraw the required amount in full. Then, again, you will file Form 5329. On the form you can request that the IRS waive your penalties. If you can show that you made a good faith, reasonable error, and that you have taken steps to correct the mistake, the IRS may waive your penalties.

A financial advisor can help you navigate legislation and paperwork. Use this free tool to match with a fiduciary advisor.

Can You Adjust RMDs in a Bear Market?

This brings us back to our original question: Can you take RMDs when your portfolio is down in order to reduce your required withdrawals?

For example, say that on December 1 your 401(k) is worth $1 million and you’re 75 years old, giving you a required minimum withdrawal of $40,650. Then, in June, a bear market hits and your 401(k) dips to $800,000. If you ran the numbers then, your required minimum distribution would be: $800,000 / 24.6 = $32,520. Can you pull that money out and call it good?

Sadly, no.

By the morning of January 1, your RMD for the year has already been defined. Even if your portfolio dips, you must still withdraw $40,650 over the course of the year. The good news is that your required distribution won’t increase in a bull market, either. While unrelated to this specific issue, you also cannot use a Roth IRA conversion to satisfy your required minimum distributions. Roth conversions do not count toward RMDs.

However, you can affect these numbers between years. For example, say that it’s November and your 401(k) worth $1 million. At this point you can try to manage your money for the coming year. If you withdraw $200,000 by December 31 (not accounting for returns), your 401(k) will be worth $800,000. That would change your RMD calculation for the following year.

You cannot change your required minimum distributions during a tax year. These are defined once the year begins. However, by adjusting the value of your portfolio, you can adjust the value of your required minimum distributions in the year to come.

Bottom Line

Each year’s required minimum distribution is calculated by the value of your portfolio and your age, both as of December 31 on the previous year. This means that your RMDs are defined annually, and cannot be adjusted during the tax year.

RMD Planning Tips

A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Required minimum distribution rules can get complicated, but given the significant tax penalties involved, it’s important to get them right. Here are six tips for understanding your required minimum distributions.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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